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Late Tuesday Western Digital (NASDAQ:WDC) announced it is working with Elliot Management to explore potential strategic alternatives for the company, including potentially separating its NAND and HDD segments.
During Wednesday’s session, the company’s shares, after initially rising, are now down 4%.
Here are comments from three analysts regarding the news.
Wells Fargo analyst Aaron Rakers told investors in a note that they believe shares of Western Digital should trade higher on the news.
“We think W. Digital’s commentary in an issued press release will be viewed as further indication that the company is actively evaluating/exploring the value creation potential from separating the HDD and Flash operations—specifically pointing to: ‘a comprehensive range of alternatives, including options for separating its market-leading Flash and HDD franchises.’ We reiterate our consistent investment thesis that WD’s sum-of-the-parts (SOTP) valuation presents an attractive risk/reward given the implied discounted value being placed on the company’s Flash business,” said Rakers, who reiterated an Overweight rating and $75 price target on the stock.
Wedbush analyst Matt Bryson said: “Our view has been that there are some advantages to WDC’s combination of NAND and HDD businesses (particularly sales synergies), but with the market valuing WDC’s assets at a discount (WDC’s valuation as a combined entity implies a minimal valuation for its NAND business that is well below what the market had valued SanDisk at as an independent company as well as at a significant discount to memory peers), that the company should be exploring strategic options and particularly choices that would yield a relatively better value for the NAND asset (e.g., NAND industry consolidation).” Bryson maintained an Outperform rating and target price of $70 on the stock.
Finally, Stifel analyst Patrick Ho said in a note to clients that they “cannot argue with the potential of a split-up of the two businesses, as our own target price for WD, reflects the valuations of the sum-of-parts, and not of the company as one entity.” The Stifel analyst maintained a Buy rating on the stock, adding: “We believe Elliott’s view of a potential share price over $100 is unreasonable, but we do need to see better execution from the company in both businesses. We expect a decision to be made on this end in a relatively short order of time and suspect that this business break up is the most likely outcome.”
