Buy The Dip In Western Digital, Longbow Says

Now is the time to buy into Western Digital Corp WDC, says Longbow analyst Joe Wittine. He reiterated Buy rating on the stock with a $120 price target, representing a near-40 percent upside from Friday’s open. The price target is “just 10x” the company’s calendar year 2017 EPS estimate of $12.

The analyst’s increasingly bullish view of the company stems from quickly weakening pressure regarding Toshiba and cyclical tailwinds brewing for the second half of the year.

Toshiba Drama Fading

Toshiba has been in the news recently over the sale of its highly valued chip manufacturing business. The sale was deemed necessary to cover the company’s failed nuclear power business.

A deal with a Japanese government-led group seemed to be a sure thing, but has been delayed by a lawsuit from Western Digital, which is a major investor in the chip business, claiming that Toshiba needs its approval to sell.

Western Digital has filed its own bid for the business, but has been hit back by a Toshiba countersuit.

Wittine believes Western Digital’s consent rights through its subsidiary SanDisk are “ironclad,” meaning it stands to capitalize on any deal to sell to the Japanese government’s consortium or any other bidder.

“We expect this would spur a relief rally, by eliminating investor concerns WDC would overpay for peak NAND earnings,” said Wittine.

NAND Is Not A Problem

In addition to the potential benefits of its claims over Toshiba, Wittine said that his previous statements on NAND spot, that it was topping back in early June, were premature.

NAND spot gains resumed in June, and are expected to ramp up even further moving forward.

Western Digital benefits significantly from Apple Inc. AAPL’s iPhone production cycle. Smartphones make up about 40 percent of demand for NAND.

The company will also benefit from regular storage seasonality in the second half. Contract prices, which serve as a proxy for WDC given its limited spot participation, have continued to rise, up 2 percent month-over-month in June.

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