Wells Fargo Starts Western Digital Corp. (WDC) at Market Perform

November 28, 2012 5:36 PM EST
Get Alerts WDC Hot Sheet
Price: $71.67 --0%

Rating Summary:
    26 Buy, 10 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 6 | Down: 10 | New: 6
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Wells Fargo initiates coverage on Western Digital Corp. (NASDAQ: WDC) with a Market Perform and valuation range of $33-$38.

The firm comments, "We believe concerns around end-market demand are weighing on Western Digital, driving down valuations below its historical 5-year average of 8.1x. While we believe the death of the hard disk drive (HDD) is overstated and significant industry consolidation should mitigate some industry pricing pressure, we expect the uncertainty surrounding the timing and magnitude of any recovery in core markets (particularly PCs, which many believe may not recover) to continue to weigh on valuations at least through the first half of the calendar 2013. A dividend yield of 3.0% and targets to return 50% of its free cash flow to shareholders should provide some levels of support, though we see limited material catalysts to lift the pressure on WDC's earnings multiple, particularly in light of 1) our expectation for continued weak end-market demand over the medium term, 2) an earnings guidance cut to FY2013 (though we believe the Street already anticipates the company's $10 EPS as being too aggressive), and 3) some concern that the new gross margin target ranges may be difficult to maintain particularly at the mid or high-end of the range given the demand environment (we believe gross margins over the past year were inflated by lower marketing incentives and warranty accruals - 680bps in FQ2 2012 and 340bps in
FQ3 2012)."

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 $34.69 yesterday.

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