Western Digital stock remains a Buy with 25% upside potential, says TD Cowen By Investing.com

On Friday, Western Digital Corp. (NASDAQ:) saw its price target lowered by TD Cowen to $80.00 from the previous $95.00. Despite the reduction, the firm maintains a Buy rating on the stock. The adjustment comes as the company prepares for the anticipated spin-off of its Flash business in the upcoming months.

The analyst from TD Cowen provided insights into the valuation of Western Digital’s separate businesses. The NAND business, which is set to become an independent entity, is valued at approximately $6 billion, equating to around $16 per Western Digital share. In an optimistic scenario, this valuation could reach as high as $40 per share. The HDD business, on the other hand, is valued between $50 and $70 per share.

The report also delves into the potential risks and opportunities for Western Digital’s two segments. The new price target of $80 represents an approximate 25% upside from its current level, based on an average of scenario analyses conducted by the firm.

Western Digital, known for its data storage solutions, is undergoing significant changes with the planned separation of its Flash segment. The move is aimed at unlocking value for shareholders and allowing each business to focus on its strategic priorities.

The company’s stock will continue to be monitored by investors as the spin-off approaches, with the valuation and performance of the independent entities being of particular interest. The current Buy rating suggests that TD Cowen remains optimistic about Western Digital’s prospects even as it adjusts its expectations in light of the upcoming corporate changes.

In other recent news, Western Digital Corp has seen a range of developments. Citi has maintained its ‘Buy’ rating on the company but reduced the shares target to $85, citing a softer expected pricing environment for NAND products. This decision was based on a recent revision of NAND average selling price growth forecasts and resulted in an approximate 8% decrease in earnings per share estimates for Western Digital.

In another move, Western Digital has initiated the process to register for the potential resale of shares of its preferred and common stock. This action does not indicate an immediate sale of shares but provides the company with flexibility in its capital structure management.

Western Digital’s earnings have surpassed expectations due to robust sales in Nearline HDD and Enterprise SSD segments, leading to a positive projection into the fiscal year 2025. Analysts from Evercore ISI, Benchmark, and other firms have reaffirmed their confidence in Western Digital’s financial outlook, despite potential softness in Flash revenues.

The company has also reported strong Q4 and full fiscal year 2024 results, with Q4 revenues reaching $3.8 billion and full-year revenues totaling $13 billion. Western Digital anticipates continued growth, driven by demand in AI data storage, and expects revenue for the first quarter of fiscal year 2025 to be between $4 billion and $4.2 billion.

InvestingPro Insights

As Western Digital Corp. (NASDAQ:WDC) navigates through its anticipated business spin-off, real-time data from InvestingPro underscores some key financial metrics and analyst expectations that investors may find valuable. The company’s market capitalization stands at a robust 22.09 billion USD, reflecting its significant presence in the market. However, the P/E ratio indicates that WDC is not currently profitable, with a negative value of -24.23. This aligns with the fact that WDC has not been profitable over the last twelve months, as highlighted by one of the InvestingPro Tips.

Despite these challenges, analysts remain optimistic about the company’s future, predicting a return to profitability this year. Additionally, they anticipate sales growth in the current year, which could be a positive sign for the company’s revenue trajectory. The adjusted revenue growth for the last quarter of 2024 is notably high at 40.87%, suggesting a strong end to the year. Moreover, Western Digital is recognized as a prominent player in the Technology Hardware, Storage & Peripherals industry, which could bode well for its strategic positioning post-spin-off.

For investors looking for more in-depth analysis and additional insights, there are seven more InvestingPro Tips available at https://www.investing.com/pro/WDC. These tips can provide further guidance on Western Digital’s financial health and market potential as the company embarks on its new chapter.

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