Western Digital (WDC): SanDisk License Created Slight Headwind - Mizuho

August 25, 2016 6:39 AM EDT
Get Alerts WDC Hot Sheet
Price: $71.00 --0%

Rating Summary:
    26 Buy, 10 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 0 | Down: 0 | New: 0
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Mizuho Securities analyst, Vijay Rakesh, reiterated his Buy rating on shares of Western Digital Corp. (NASDAQ: WDC) ahead of the SNDK license renewal in August. NAND pricing remains stable which, combined with seasonal HDD trends into 2H16, positions WDC well. WDC has lowered financing costs by ~$100M/yr with the recent refinancing, and continues to have the on-going $75M/qtr of synergies which should be a tailwind.

After retiring $3B of outstanding debt (announced on the JunQ earnings call) WDC recently announced a $3B term loan refinance at rates 175 bps lower, saving an annual $100M in interest payments. It also announced another $750M debt retirement. While WDCs average cost of debt exiting JunQ was ~5.6%, this refinancing, a significantly better balance sheet and a successful deal close open the doors for further accretive refinancing of ~$8B of debt (exSr Loans due 2019).

Licensing rates have been coming down with every license renewal. Considering how fundamental the NAND patent is to the way memory is stored, the royalties should not go away rates should come down. The analyst estimates JunQ (half-quarter) royalties at ~$46M, so that assuming ~30% cut, a full quarter of licensing should be ~$60M, with the cut partially offset by accretive financing and cost synergies (~$75M/qtr).

but cut his price target to $54 (from $56).

For an analyst ratings summary and ratings history on Western Digital Corp. click here. For more ratings news on Western Digital Corp. click here.

Shares of Western Digital Corp. closed at $45.41 yesterday.

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