Western Digital Analysts Guarded On V-Shaped Recovery Company Predicts For NAND Market

Western Digital Corp WDC reported in-line fourth-quarter earnings and revenues that came slightly shy of estimates. The forecasts for the first quarter also largely met estimates.

The Analysts

Morgan Stanley's Joseph Moore maintained an Equal-Weight rating on Western Digital but lifted the price target from $46 to $50.

UBS analyst Munjal Shah maintained a Neutral rating but increased the price target from $47 to $54.

Wells Fargo's Aaron Rakers remained Overweight and hiked the price target from $65 to $70.

Morgan Stanley: V-Shaped Recovery Unlikely

Western Digital's guidance surprisingly didn't show much hit from the disruption due to the power outage even through the December quarter, Moore said.

The company sees NAND margin improvements beyond the September quarter, given high conviction in price increases.

Moore, however, doesn't see the V-shaped recovery predicted by management materializing, although he expects margin improvement beyond September.

Moore also noted the company said it stopped shipping to Huawei as soon as it was added to the entity list and resumed shipping in mid-June, with the stoppage hurting $100 million in potential revenues in the June quarter.

The analyst also expressed skepticism regarding the low 30% shipment growth implied by the calendar year 2019 guidance, which would warrant a second-half surge.

"Ultimately, while the anecdotal commentary from the company is compelling and will probably keep the stock moving higher, we are skeptical that we will remain in an allocation environment for long," Moore wrote in the note.

UBS: Stock Reflects Near-Term NAND Improvement

Western Digital's stock reflects near-term NAND improvement, likely driven by supply reduction at the company and competitors, Shah said. However, the supply-demand dynamics after capacity is back is still uncertain.

The analyst said if the allocation situation is short-lived, then the ability to increase prices with contract customers could be limited.

Despite the price improvement, gross margin recovery is slow, partly due to startup cost for K1, he added.

Wells Fargo: Investor Sentiment To Positively Shift

Wells Fargo is incrementally positive.

With the company's positive NAND market commentary along with incrementally positive commentary on its commencing ramp of NVMe enterprise SSDs, execution on BiCS4 96L 3D NAND ramp and continually strong near-line HDD results, investor sentiment is likely to positively shift to gauging upside drivers, Rakers said.

He expects the company to return to non-GAAP EPS at over $7 per share.

Price Action

Western Digital shares traded slightly higher at $54.31 per share.

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