Why JP Morgan Downgraded Western Digital

In a report published Tuesday, JP Morgan analysts Rod Hall and Ashwin Kesireddy downgraded shares of Western Digital Corp (NASDAQ: WDC) from Overweight to Neutral and trimmed their price target through December 2016, from $105.00 to $92.00, on the back of below consensus EPS expectations for the upcoming quarters.

In addition, the analysts rolled out the firm’s proprietary model for hard disk drives (HDDs). They now forecast a 10.2 percent decline in unit shipments (to 507 million) for 2015, and a 2.3 percent drop (to 495 million) for 2016.

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The also expect ASPs to surge from $58.6 in 2014 to $60.1 in 2015, and to $61.2 in 2016. The analysts, “believe this is driven by increasing capacities per unit as well as the rising mix of enterprise HDD shipments.”

The analysts also reduced their fiscal 2016 EPS estimates, not only for Western Digital (down 1.6 percent to $7.41), but also for Seagate Technology PLC (NASDAQ: STX) (down 9.1 percent to $4.44), to incorporate continuing negative PC data.

Hall and Kesireddy updated their storage market forecast, and now expect revenue growth of 2.0 percent in 2015 and 1.6 percent in 2016, driven by better SAN performance.

Shares of both Western Digital and Seagate fell on Tuesday.