Western Digital Poised For Breakout, Analyst Sees 10% Estimate Beat And Powerful NAND Recovery

Evercore ISI Group analyst Amit Daryanani initiated coverage on Western Digital Corp WDC with an Outperform rating and a price target of $80.

The analyst found the company uniquely positioned to outperform, given a host of tailwinds that could drive a sizable upside to estimates (his estimates are ~10% higher vs. street). 

While investors have been somewhat skeptical of the name, given it is “too complicated,” Daryanani expects the story to get “less complicated” over the next ~2-3 quarters as WDC splits into two distinct assets. 

His analysis suggests that, on a sum-of-the-parts basis, the asset should be worth $80-85, though there could be some stranded costs that will diminish this number as details get flushed out. 

Beyond that, WDC will see a confluence of cyclical HDD recovery as hyperscalers are done with nearline digestion, as per the analyst. WDC should see exabyte (EB) demand shift higher (30%+) over the next few quarters. 

NAND recovery could be more sizable per the analyst as NAND capex has been down >75% from the peak. At the same time, there is less talk about new entrants making the economics of a NAND recovery more powerful as utilization rates improve, node migrations shift out, and capex remains muted. 

Gross margins should recover materially, he noted. Daryanani modeled gross margins on the HDD side should end up close to 33% vs. last quarter at 25%, and NAND gross margins get close to 33%+ in fiscal 2025 vs. 8% last quarter. 

As pricing improves in NAND and, to a lesser extent, HDD, coupled with better utilization rates, it could have a sizable tailwind. 

Over the next ~6 months, as details of the split and business models are clearer, it will unlock value here and drive the stock higher, as per Daryanani. 

Investors underestimate WDC’s capacity to pay down debt over the next six months before the spin, enabling the HDD business to carry less debt than expected. The analyst added that this could result in a more robust than anticipated capital return program. 

The stock has gained over 91% in the last 12 months. Investors can gain exposure to the stock via IShares Future Cloud 5G And Tech ETF IDAT and Columbia ETF Trust I Columbia Seligman Semiconductor And Technology ETF SEMI.

Also Read: Micron, Seagate, Western Digital Poised for Upswing, Driven by NAND Price Surge, Analyst Forecasts

Price Actions: WDC shares traded lower by 1.17% at $67.36 on the last check Wednesday.