Attention Western Digital Investors: Don't Let Cautious Calls For NAND Pricing Concern You

Longbow Research analyst Joe Wittine began his latest coverage of Western Digital Corp WDC with strong instructions: Do Not Overreact.

It’s a response to NAND, a type of flash memory, spot prices topping. Wittine reiterated his Buy rating with a price target of $120 and expects an EPS beat for the fourth quarter.

What’s Up With NAND?

• Monthly spot price increases for MCL and TLC NAND have slowed, becoming effectively flat in May.
• Aggregate spot prices have increased about 0.5 percent since Western Digital guided.
• Contract pricing is up 11 percent for the second quarter, to date, compared to Q1.
• The flash supply chain seems to be tightening.

Do Not Overreact

The analyst recommends not paying too much mind to spot prices for the following four reasons:

1. Western Digital doesn’t participate in the spot market.
2. Spot volumes are exceptionally low.
3. Spot price is seasonally low around May.
4. Western Digital lags up to three months based on binding NAND purchases.

In the near term, Wittine likes the setup for second-half fiscal 2017 as seasonality could again send NAND prices higher. He notes that in the longer term, the Buy rating reflects valuation that does not reflect Western Digital’s return to a secular grower.

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