Brean Bullish On Western Digital Heading Into Tonight's Earnings

Western Digital Corp (NASDAQ: WDC) is scheduled to report earnings after market close today. Brean Capital’s Ananda Baruah maintained a Buy rating for the company, while raising the price target from $120 to $108. The analyst commented that there is potential for 130 percent upside in shares.

Analyst Ananda Baruah believes that Western Digital would be able to achieve or beat the high-end of its March quarter EPS guidance of $1.20-$1.30, even after assuming a 97M TAM as reported by Seagate Technology PLC (NASDAQ: STX).

Baruah expects the company to announce its June quarter EPS guidance in-line with the March quarter’s $1.20-$1.30 range. He added that the guidance could be higher, reflecting potential OEM ASP increases.

SanDisk Corporation (NASDAQ: SNDK) has already reported its results, beating expectations, which bodes well for Western Digital’s upcoming results. SanDisk’s results reflected less-than-feared sequential declines in NAND shipments and ASPs, indicating “some semblance of stable underlying demand and pricing dynamics,” the analyst wrote.

Deal With SanDisk

The SanDisk deal should be able to result in attractive net income synergies and equity appreciation, Baruah mentioned. The synergy estimate for the first 6 quarters is ~$800M and the MOFCOM COGS benefit estimate is at least $300M - $400M.

Bullish About WDC

“Simply, we believe that 1) normalized fundamentals for both initial synergies (WDC controlled) and MOFCOM COGS benefits remain underappreciated, and 2) valuation multiples remain depressed given #1, along with softer current demand, a general lack of visibility to strategic challenges / deal execution, and pivot in investment case for WDC shareholders,” the Brean Capital report stated.