Western Digital Downgraded, BMO Says Shares Are Range-Bound

Western Digital Corp WDC shares could be range-bound in the near-term, according to BMO Capital Markets, prompting a downgrade from the research firm. 

The Analyst

BMO Capital Markets analyst Tim Long downgraded shares of Western Digital from Outperform to Market Perform and lowered his price target from $120 to $85.

The Thesis

Western Digital's fundamentals are healthy, but several factors keep the stock in the trading range, analyst Long said in a Wednesday note. (See the analyst's track record here.) 

A flash supply-demand balance is on the horizon, meaning there's limited upside for gross margins and revenue growth, the analyst said. 

Notwithstanding healthy bit shipments anticipated throughout calendar 2018 due to strong demand and improved capacity, Long said he expects a decline in ASPs that will negatively impact revenue growth and gross margins in fiscal 2019.

The peak cycle is expected to keep shares of the company range-bound, as it trades like a hybrid of hardware and memory, Long said. 

"Given the cyclical nature of the memory industry, we believe valuation will remain depressed on the expected slower growth and lower gross margins."

Hard disk drives, or HDDs, are expected to remain in decline, with a 7-percent decline in units projected by BMO for calendar 2019. HDDs account for about half of Western Digital's revenue. 

The Price Action

Western Digital shares have gained more than 17 percent over the past year.

The stock was trading down 0.68 percent at $82.11 at the time of publication Thursday. 

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