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Goldman Sachs analysts downgraded Western Digital (NASDAQ:WDC) to Sell from Neutral as they believe the ongoing downturn in NAND could get worse.
The new price target on WDC stock is $31 per share (down from $43), signaling a downside risk of 13.5% relative to yesterday’s closing price.
In addition to weakness in the NAND sector, the analysts are cautious over historically low gross margins. They estimate that the non-GAAP gross margin could fall from about 28% in 2022 to around 17% in 2023.
“With both revenue and operating profit under pressure, we expect quarterly operating EBITDA, excluding add-backs from WD’s JV with Kioxia, to remain negative throughout 2023, although we project a rebound in CY24 as fundamentals begin to trend toward more normalized levels,” they said in a client note.
The combination of these factors “could pose risk to WD’s competitive position, particularly as net debt to TTM EBITDA elevates over the coming quarters.”
“Looking ahead, we expect net leverage on the company’s balance sheet to come under greater scrutiny by investors, and may also constrain operating activities in the near-term,” the analysts concluded.
Western Digital stock is down nearly 5% minutes before New York opens.
