Western Digital (WDC) Gains 4% After a Q3 Beat, Analysts Raise PTs as There is 'Plenty of Upside Left'

April 30, 2021 8:31 AM EDT
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Shares of Western Digital (NASDAQ: WDC) gained 4.5% in early trading Friday after the company reported better-than-expected Q3 results.

The data storage company reported $4.1 billion for the quarter, 1% down year-on-year but outstripping analysts’ expectations of $3.97 billion. Non-GAAP earnings per share were at $1.02, up 20% year-on-year and much higher than the $0.68 per share consensus.

“We reported solid results above the guidance range, driven by increasing momentum of our energy-assisted drives and our second-generation NVMe enterprise SSDs, improving NAND flash pricing trends, along with the continued accelerated digital transformation across end markets,” said the company’s CEO David Goeckeler.

The 1% drop in revenue comes as a result of a decline in revenues in WD’s Data Center Devices and Solutions units. However, the company received a boost from a strong surge in demand for notebooks, PCs, and gaming consoles.

As for the fourth quarter, WD expects between $4.4 billion to $4.6 billion in revenues as well as a gross margin between 29% and 31%. The data storage devices manufacturer also predicts non-GAAP diluted EPS to range between $1.30 and $1.60.

After the earnings report, Tristan Gerra, an analyst at Robert Baird, hiked the price target for WD’s stock from $85.00 to $100.00 and reiterated a “Buy” rating.

“NAND gross margin of 30% in the reported quarter highlights a still-early stage in cyclical recovery. We continue to expect NAND pricing to increase in C2H,” Gerra said, referring to the results.

The Robert Baird analyst was joined by his colleagues at multiple Wall Street in raising the price target. As such, Susquehanna analyst Mehdi Hosseini is more bullish on the stock as his price target is set at $125.00 per share from $124.00 as there is “plenty of upside left.”

“We remain comfortable with our CY22 EPS estimate of $15.65, or ~2x above the current consensus!,” said Hosseini in a note.

Analysts are also positive on the WDC stock amid a bullish NAND environment.

“Commentary suggests strengthening HDD and NAND fundamentals into 2H21. Although the company did not provide any specific guide, commentary suggests customers are trying to lock in 2H NAND shipments with higher prices, which combined with continued bit cost down should help drive 10-15 points of GM expansion The company also noted 18TB Nearline EB shipments should continue to increase, while the overall HDD GM finally starts to improve towards the long-term target of 30%,” Hosseini added.

Vijay Rakesh, a managing director at Mizuho, cites solid guidance as he raises the PT to $88.00 per share from $80.00.

“WDC NAND GMs were 30%, up 290bps q/q reflecting better NAND pricing and a mix shift to higher margin end-markets and retail strength. WDC is also seeing improving NAND GMs in the JunQ driven by positive price trends, and continues to focus on ~15% y/y cost-downs. HDD GMs of 25% were down 60bps q/q in the MarQ due to energy-assisted drive ramps and lower units shipped. WDC sees 2H21 HDD strong with 18TB crossover driving better GMs, and demand growing q/q at Cloud, Enterprise, and Consumer,” he said in a memo.

“We see WDC well positioned with price support and broad-based demand trends in Data Center, Enterprise, and Consumer expected to sustain in C21 while supply remains relatively tight.”

Stifel analyst Patrick Ho also raised the price target on WDC to $98.00 per share (from $94.00) after a strong fiscal Q3 report.



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