On Friday, Goldman Sachs updated its financial outlook for Western Digital Corp. (NASDAQ:WDC), raising the price target to $76 from the previous $58 while maintaining a Neutral rating on the stock. The revision reflects a significant increase in the firm's non-GAAP EPS estimates for fiscal years 2025 and 2026, by 43% and 44% respectively.
The adjustment by Goldman Sachs is based on several industry factors that are seen as favorable for Western Digital. The firm cites constructive NAND supply/demand dynamics, improving nearline HDD demand, and strong market share momentum for Western Digital in the HDD space, especially in high-capacity segments.
Despite the price target increase, Goldman Sachs reiterated its Neutral stance on Western Digital shares. The new 12-month price target suggests a modest 3% potential upside from the stock's current levels. The firm acknowledges that its updated estimates are significantly higher than the consensus among other analysts.
Goldman Sachs notes that Western Digital's stock performance has historically shown a close correlation with next twelve months (NTM) earnings estimates. The firm's analysis, which includes both bull and bear case scenarios, indicates a positively-skewed risk/reward profile for the company.
The report from Goldman Sachs concludes by mentioning that while the updated estimates are positive, the firm is looking for additional indicators of a sustained increase in storage demand driven by AI proliferation before becoming more constructive on Western Digital's stock. The full note from the firm elaborates on the changes to the estimates, key debates, and the new introduction of bull/bear analysis.
InvestingPro Insights
As investors digest the upbeat outlook from Goldman Sachs on Western Digital Corp. (NASDAQ:WDC), real-time data and insights from InvestingPro further enrich the analysis. Western Digital's market capitalization stands at a robust $24.13 billion, indicating its significant presence in the technology hardware sector. Despite analysts revising earnings upwards for the upcoming period, the company's P/E ratio remains negative at -10.17, reflecting the challenges it faces in turning a profit in the near term. Moreover, the stock is currently trading near its 52-week high, with a price percentage of 94.84% of this peak, signaling strong recent performance.
InvestingPro Tips highlight the company's position as a prominent player in the Technology Hardware, Storage & Peripherals industry, but also point out that Western Digital suffers from weak gross profit margins of 8.29%. The stock's price movements have been quite volatile, and although there has been a high return over the last year with a 91.97% increase, analysts do not anticipate the company will be profitable this year. This aligns with Goldman Sachs' neutral rating, despite the price target lift.
For those looking for a more in-depth analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/WDC. Interested readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, offering a comprehensive suite of tools for a more informed investment decision-making process.
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