A Word In Defense Of Western Digital

Reviewing Western Digital Corp WDC's September quarter results, Cowen defended the performance and delved into what needed to be done from here.

As such, the firm maintains its Outperform rating and $117 price target on the shares of the company.

At time of writing, Western Digital shares were sliding 5 percent to $84.91.

Analyst Karl Ackerman noted that the September quarter results and the December quarter guidance were ahead of expectations. Specifically, the analyst said the improved outlook implied earnings per share of $13 for 2017, which he termed as great performance.

Ackerman said the company's earnings multiple has compressed by about 2.5 turns since April, even as the Street estimates for calendar-year 2017 have moved from $9 to an estimated $12.50, post this call. The analyst added that from an operational perspective, this multiple compression is not justified.

See also: What Uncertainty Around Toshiba's Future Means For Western Digital

Cowen continues to see both revenue and margin upside in the core NAND business over the next few quarters, which makes it to be constructive on the stock.

The firm did not rule out the possibility of revenues hitting $5.3 billion to $5.4 billion in the December quarter alone and earnings per share approaching $4, provided NAND ASPs aren't down 6 percent sequentially and bits grow in-line with SAMSUNG ELECTRONIC KRW5000 SSNLF and SK HYNIX INC SPON GDR EA REPR 1 ORD SHS HXSCL.

"Moreover, it appears hyperscale should come roaring back in 1H:18 that will drive its core HDD biz the next few Qs," the firm added.

While stating that Toshiba Corp (USA) TOSYY is clearly the elephant in the room, the firm said it expects an amicable resolution that anchors Western Digital's roadmap beyond calendar year 2018. Given the strong fundamental landscape, the firm said it pays to wait out the saga.