On Tuesday, Citi maintained its Buy rating on Western Digital Corp. (NASDAQ:WDC) but reduced the shares target to $85 from the previous $95, citing a softer expected pricing environment for NAND products.
The adjustment follows a recent revision of NAND average selling price (ASP) growth forecasts for 2024 and 2025, reflecting weaker-than-anticipated demand in the mobile and PC sectors.
The firm's analysts have also slightly lowered their September and December quarterly and full-year 2025 Flash ASP and margin expectations for Western Digital, aligning them with long-term projections of 35%-37%.
Consequently, earnings per share (EPS) estimates for the company have been decreased by approximately 8%, leading to the new price target based on a 10x price-to-earnings (PE) ratio.
While acknowledging the current volatility in NAND market fundamentals, Citi remains optimistic about the overall supply and demand dynamics in the industry.
The analysts highlight several positive factors, including healthy demand for hard disk drives (HDD), favorable NAND industry demand supported by emerging enterprise solid-state drive (SSD) demand and sensible capacity management, as well as the potential value to be unlocked from the anticipated spin-off.
The revised price target reflects the firm's updated outlook and ongoing confidence in Western Digital's business prospects despite near-term market fluctuations.
The analysts emphasize their constructive stance on the company's supply and demand situation, which is expected to benefit from a combination of robust HDD demand, favorable NAND demand trends, and the strategic spin-off planned by the company.
InvestingPro Insights
In light of Citi's recent analysis of Western Digital Corp. (NASDAQ:WDC), InvestingPro data and tips offer additional insights into the company's financial health and market position. Despite a challenging pricing environment for NAND products, Western Digital is expected to see net income growth this year, as analysts anticipate sales growth in the current year. This aligns with Citi's outlook on the company's potential to capitalize on favorable supply and demand dynamics in the industry.
InvestingPro data shows Western Digital with a market capitalization of $21.5 billion and a revenue growth of 5.56% over the last twelve months as of Q4 2024. While the company has been trading at high EBIT and EBITDA valuation multiples, analysts predict Western Digital will be profitable this year, which could justify the current valuation. Notably, the company's shares have seen a 19.55% year-to-date price total return, reflecting investor optimism. Additionally, Western Digital does not pay a dividend, which may be a consideration for income-focused investors.
For readers interested in a deeper dive into Western Digital's financial metrics and strategic positioning, InvestingPro provides further analysis and tips. Currently, there are additional InvestingPro Tips available for Western Digital, which can be accessed for more detailed investment guidance.
The insights provided by InvestingPro complement the narrative of Citi's report, offering investors a more comprehensive view of Western Digital's financial landscape and supporting informed investment decisions.
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