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Unlocking Material Value: Western Digital’s Impending Separation

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Introduction

Separation as a Catalyst

According to Moore’s research note, Western Digital’s impending separation into two companies – one focusing on disk drives and the other on NAND flash memory chips – is expected to unlock significant value. With a price target of $73, representing a 33% upside from the closing price of $54.77 on Friday, he deems the valuation disparity between Western Digital and its peers as extremely compelling. This separation will enable each company to focus on its respective market segment, driving specialized innovation and growth.

Flash Memory: A Rapid Recovery

Moore highlights that business is rapidly improving for Western Digital, especially in the flash memory segment. Flash memory prices have surged by more than 20% compared to the previous quarter, signaling a positive shift in market conditions. This upward momentum presents a favorable backdrop for Western Digital’s future performance.

Gradual Recovery in Hard-Disk Drives

While flash memory steals the spotlight, Moore underscores that Western Digital is also witnessing a gradual recovery in hard-disk drives. After experiencing weak market conditions in 2023, the company is navigating towards a resurgence. This recovery trend further bolsters the promising outlook for Western Digital.

Conclusion

In summary, Western Digital’s stock has been designated as the Top Pick by Morgan Stanley analyst Joseph Moore. Acknowledging the upcoming separation into two distinct companies and the significant value it will unlock, Moore forecasts a bullish target price of $73. Additionally, he highlights the robust recovery in flash memory and the gradual improvement in hard-disk drives. As Western Digital stands at the forefront of these positive developments, investors are advised to monitor its promising growth potential closely.

Analyst’s Revised Estimates for Western Digital

The renowned Morgan Stanley analyst has recently made significant revisions to his estimates for Western Digital, a popular technology company. According to his updated forecast, the company’s revenue for the March quarter is now anticipated to reach an impressive $3.49 billion, with a profit of 24 cents per share. This is a substantial increase from his previous forecast of $3.2 billion in revenue and a loss of 72 cents per share.

Looking further ahead, the analyst expects Western Digital’s profit for the entire 2024 calendar year to reach $4.18 per share, up from his previous estimate of $2.07. It is worth noting that this estimation aligns with the company’s June fiscal year.

In light of these positive projections, the analyst asserts that “the sum-of-the-parts math is straightforward and compelling” for Western Digital shares. He recommends splitting the company into two entities as it would simplify the overall story.

In terms of valuation, the analyst believes that Western Digital’s hard-disk drive business should be compared to its rival, Seagate Technology. Moreover, he highlights the impressive returns generated by the NAND business, emphasizing its strategic value. Consequently, his target price for Western Digital is set at $73 per share. This figure comprises an estimated value of $33 per share for the drive business and $40 per share for the flash memory business.

It is essential to emphasize that the analyst’s revised estimates and suggestions for dividing Western Digital do not reflect any concerns regarding Nvidia, another prominent technology company.

In recent weeks, Western Digital (WD) has shown promising growth, but it seems that Nvidia is still leading the way in the compute space. However, analysts believe that WD has significant untapped potential that should not be overlooked.

Despite the fact that Nvidia’s rally has been less impressive compared to other companies in the AI supply chain, it remains the top player in the industry. Yet, experts argue that WD could outperform expectations in the coming quarters.

While Nvidia is certainly a solid investment choice, WD should not be disregarded. With its recent performance and growth prospects, WD could surprise investors and become a top contender in the future.

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