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Western Digital (WDC) to Evaluate Strategic Options, Shares Up

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Western Digital (WDC - Free Report) is evaluating several potential strategic alternatives to unlock long-term value for its shareholders amid a push from one of its largest stakeholders — Elliott Investment Management L.P. The various alternatives include splitting up the company’s Flash and Hard Disk Drive or HDD businesses. Following the announcement, shares are up 4.2% in the premarket trading on Jun 8, 2022.

In addition to actively assessing a wide range of strategic and financial alternatives, Western Digital added that the company is evaluating Elliott Investment’s offer to invest incremental equity capital in the company’s Flash business

Western Digital and Elliott have signed a customary non-disclosure agreement and a letter agreement. This implies that such letter agreement will be filed on a Form 8-K with the Securities and Exchange Commission.

Western Digital’s financial advisors are Qatalyst Partners and Lazard, while the company’s legal counsel is represented by Skadden, Arps, Slate, Meagher & Flom LLP.

In May 2022, Western Digital received a letter from Elliott Investment. The letter stated the board of directors to carry out a strategic review of the value created by splitting its HDD and NAND flash memory businesses. Per Elliott, the split could boost Western Digital's stock price to more than $100 per share by the end of 2023, representing an upside of nearly 100%.

 

A Leading Storage Device Stock

Headquartered in San Jose, CA, Western Digital is one of the biggest players in the HDD space. The acquisition of SanDisk enabled the company to venture into the flash drive storage technology space.

Western Digital’s performance is driven by higher demand from cloud customers, especially for nearline products and recovering enterprise markets. Robust demand for 18-terabyte and 20TB energy-assisted drives and enterprise solid-state drives (SSDs) is expected to drive the top line going ahead.

Demand for the WD Black product line is strong due to gamers’ preference for more customized solutions along with SanDisk retail products. The company’s new product ramps for both HDD and flash business are expected to boost growth across several end markets.

Pandemic-related supply-chain, logistics troubles and component issues will likely bump up lead times and costs. Stiff competition, a highly-leveraged balance sheet and suspension of dividends are other concerns.

At present, Western Digital carries a Zacks Rank #3 (Hold). Shares of WDC have dropped 19.4% in the past year compared with the industry’s fall of 9.2%.

Stocks to Consider

A few better-ranked stocks from the broader technology sector worth consideration are InterDigital (IDCC - Free Report) , Avnet (AVT - Free Report) and Cadence  Design Systems (CDNS - Free Report) . While Avnet and InterDIgital sport a Zacks Rank #1 (Strong Buy), Cadence carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Cadence 2022 earnings is pegged at $3.94 per share, up 5.6% in the past 60 days. The long-term earnings growth rate is pegged at 17%.

Cadence earnings beat the Zacks Consensus Estimate all last four quarters, with the average being 10.6%. Shares of CDNS have surged 29.6% in the past year.
The Zacks Consensus Estimate for InterDigital 2022 earnings is pegged at $3.28 per share, up 5.1% in the past 60 days. IDCC’s long-term earnings growth rate is pegged at 15%.

InterDigital’s earnings beat the Zacks Consensus Estimate in all the preceding four quarters, with the average being 141.1%. Shares of IDCC have lost 17.8% of their value in the past year.

The Zacks Consensus Estimate for Avnet’s fiscal 2022 earnings is pegged at $6.83 per share, rising 20.5% in the past 60 days. The long-term earnings growth rate is anticipated to be 37.2%.

Avnet’s earnings beat the Zacks Consensus Estimate in all of the last four quarters, the average being 21.22%. Shares of Avnet have grown 11.9% in the past year.