Western Digital Estimates Cut Again, But Morgan Stanley Confident Long-Term

By Sam Boughedda

Morgan Stanley cut estimates on Western Digital (NASDAQ:) for the fourth time in three months in a note on Monday.

An analyst explained that the move was based on weaker NAND and HDD market conditions, as well as recent management commentary.

He maintained an Overweight rating on the stock but said they are lowering estimates again and projecting EPS losses for the December quarter and the next couple of quarters.

However, they “continue to see the stock as attractive on asset values, with implied memory valuation remaining below 25% of replacement cost,” despite the firm’s ongoing view of memory.

“While we have expected the DRAM market to remain weak, we have generally been surprised by NAND being even weaker; we don’t see customer inventories anywhere near as high for NAND vs. DRAM, per our checks. But exposure to weaker notebook PC and China markets is clearly taking its toll,” wrote the analyst.

“Based on commentary from the guidance, we had initially modeled NAND bits down 18% and prices down 18%, which brought our revenue estimate down to the low end of company guidance; we are now looking for volumes down 18%, and prices down 21%, but also lowering our volumes further for the December quarter. For HDD, we are trimming our estimates by 2% at the top line, given an ongoing correction in near-line drives, with the overall trajectory similar to peers,” he added.

Even so, Morgan Stanley “remain(s) convinced” the company will be a “profitable participant” in the NAND market over time.

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