SanDisk Acquisition Puts Western Digital On A Clear Path Forward, Says Argus

Argus reiterated its Buy rating and $60 price target on Western Digital Corp WDC after the company raised its first-quarter outlook on volume and mix improvements.

Western Digital increased its first quarter non-GAAP EPS view to $1.00–$1.05 from earlier guidance of $0.80–$0.90. The company projects revenue of $4.45 billion–$4.55 billion, up from prior estimate of $4.40 billion–$4.50 billion. Non-GAAP gross margin was guided higher by 100 basis points, to 33 percent.

Related Link: Barclays Recommends Investors Initiate Or Add Positions IN Western Digital

"We believe that the acquisition of SanDisk provides a clear path forward for WDC as an integrated supplier of memory solutions, though the company will also need to service $13 billion in acquisition-related debt; however, we expect cash flow from operations to cover the annual debt service by a factor of at least 2," analyst Jim Kelleher wrote in a note.

The analyst also raised his fiscal 2017 non-GAAP earnings forecast to $4.42 a share from $4.33.

Meanwhile, Kelleher also views the stock's 3.7 percent dividend yield as "secure."

As such, the analyst noted that Western Digital shares "appear to offer value for patient investors apprised of the risks in the fast-changing memory industry."

At time of writing, Western Digital was seen down 1.74 percent at $52.54.

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