Memory Suppliers Are Dumping Inventory, And These Stocks Are Paying The Price

Shares of Western Digital Corp WDC fell sharply in the pre-market on Thursday.

The San Jose, California-based company is poised for historically low gross margins, with a severe downturn in the memory industry, according to Goldman Sachs.

The Analyst: Toshiya Hari downgraded the rating for Western Digital from Neutral to Sell, while reducing the price target from $43 to $31.

Check out other analyst stock ratings.

The Thesis: The company’s non-GAAP gross margin could contract from around 28% in 2022 to around 17% in 2023, with an estimated decline in NAND ASPs by around 38% next year, Hari said.

“Furthermore, it is unlikely that management will be able to fully offset this headwind with judicious opex management, in our view, and as such we model a negative EBIT margin of 7% in CY23,” the analyst wrote.

“We believe net leverage on the company’s balance sheet is likely to come under greater scrutiny by investors, and may constrain operating activities in the near-term, presenting a risk to WD’s post-cycle competitive position,” he added.

WDC Price Action: Shares of Western Digital had declined by 4.91% to $34.07 in the pre-market on Thursday.

It's worth noting that the latest price target for Western Digital rival Micron Technology MU was reported earlier this week by Deutsche Bank. The analyst downgraded the stock, and set a price target for $55.00, expecting Micron to rise within 12 months — a possible 4.07% upside.

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