3 Reasons Why RBC Is Bullish On Western Digital

Shares of Western Digital Corp (NASDAQ: WDC) are poised for further upside despite deteriorating NAND fundamentals, according to RBC Capital Markets. 

The Analyst

Analyst Mitch Steves maintained an Outperform on Western Digital and increased the price target from $55 to $60.

The Thesis

RBC's bullish rating on Western Digital — despite the bearish views of many that the company could go bankrupt in a deteriorating NAND environment — is premised on three drivers, Steves said in a Tuesday note.

The drivers are improving PC demand, data center ramps and smartphone support emerging from Chinese handset players, the analyst said. 

Steves said he sees an additional upside driver in the implied value of Western Digital's fab.

"If we look at their 230,000-270,000 wafer starts per month, we get to a valuation of around $10 billion for the equipment alone," he said. 

This compares to the $14 billion to $15 billion market capitalization of Western Digital shares, Steves said. 

Assuming a conservative implied value for the equipment alone at the company's NAND fabs, the analyst said the stock likely holds $12.50 in upside. 

The company is likely to benefit from its ability to accelerate and further improve capital allocation; the better-than-feared NAND cycle;  and its ability to sustain and expand leadership in enterprise drives, he said. 

"With the acquisition of SNDK, we think WDC is positioned to transform into a medium agnostic storage provider." 

The Price Action

Western Digital shares were down 0.87 percent at $51.14 at the time of publication Tuesday. 

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Photo courtesy of Western Digital.