Wall Street Just Slashed Western Digital’s Price Target by $280. Here’s Why I’m Still Buying.
Western Digital Corporation (WDC) just got a mixed signal from Wells Fargo. On Oct. 16, the firm cut its price target from $730 to $450 but kept its “Overweight” rating. The stock has slid sharply after reports that Toshiba (TSHTY) plans to double its hard drive output for AI data centers. That could ease the drive shortage that has pushed prices higher. Still, Wells Fargo expects revenue growth of 25% to 30% or more, with gross margins reaching 60% to 65% or higher.
A few days earlier, UBS also cut its target from $525 to $470 while keeping a “Neutral” rating. It warned that hard drives may be more cyclical than the market thinks, with a possible downturn in late 2028 or early 2029.
More News from Barchart
Why I Side With the Bulls
UBS raises a fair point, but I think the Toshiba fear is overblown. Toshiba is the smallest of the three hard drive makers, with a far smaller share than Western Digital or Seagate (STX). Last quarter, Western Digital shipped 22% more storage capacity while charging more per terabyte. That pushed revenue up 44% to $3.75 billion. I think AI demand is strong enough to absorb Toshiba’s extra supply without a big hit to prices.
About
Western Digital Corporation makes and sells data storage products that use hard disk drive technology. It sells its data storage devices and solutions through its computer sales personnel, dealers, distributors, retailers, and subsidiaries. It is also working with Open Quantum Design to develop technology that could help make quantum computing more reliable. Founded in 1970, the company is headquartered in San Jose, California.
Over the past year, WDC shares have surged 171%, just slightly underperforming Seagate’s gain of 174%. The stock has been fairly volatile. After climbing to $746 by mid June, the stock continued to decline. It is currently trading sideways after reaching a 52-week high of $799.
Cheap on Earnings, Even After the Run
Western Digital’s forward price-to-earnings (P/E) of 17.99x sits 50% below its 5-year average of 35.72x. Its forward price-to-sales (P/S) ratio of 10.26x is significantly higher than its average of 2.88x. That makes sense, since the company now keeps far more of each sale as profit. Analysts expect EPS to roughly double this fiscal year and grow 62% the next. That would push the P/E below 10x by fiscal 2028. It also holds $1.58 billion in cash against $1.19 billion in debt. That debt is small for a company that generated $1.28 billion in free cash flow in just its latest quarter.
Western Digital Expects Higher Revenue and Margins in Q1 FY2027
Western Digital Corporation reported its fourth-quarter fiscal 2026 earnings on Aug. 5. It reported revenue of $3.75 billion, up 44% year-over-year (YoY). The earnings per share came in at $3.56, comfortably beating the Wall Street consensus of $3.29. The company said 2026 was an exceptional year, helped by its transformation into a pure-play hard disk drive company and by strong demand from cloud and AI customers. Gross margin for the quarter was 54.4%, up 1,210 basis points from a year earlier. On the balance sheet, free cash flow stood at $1.3 billion, while capital spending for the quarter was $108 million.
Looking forward, the company guided fiscal first-quarter revenue to $4.1 billion and adjusted EPS to $4. The company also expects a gross margin of 55% to 56% and operating expenses of $390 million to $400 million. Exabyte growth is expected to be 25% or more going forward, supported by AI, cloud, and other data-heavy workloads.
What Do Analysts Expect for WDC Stock?
Bank of America Securities reiterated a “Buy” rating with a price target of $800. In addition to BofA, Western Digital also received a “Buy” from Barclays’s Thomas O’Malley. However, on Oct. 12, UBS assigned a “Hold” rating.
Based on 25 Wall Street analysts, WDC holds a consensus “Strong Buy” rating. Of the 25 analysts, 18 have a “Strong Buy” rating, one has a “Moderate Buy” rating, six have a “Hold” rating, and none have any form of “Sell” rating. Despite the price target slashes, the stock’s mean price target of $622.13 still reflects an impressive 79% upside from current levels. With no “Sell” rating and an impressive upside, it indicates that analysts are optimistic about the company’s business.
On the date of publication, Jabran Kundi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com