NAND memory chip manufacturer Western Digital (NASDAQ: WDC) caught short sellers’ attention after Toshiya Hari, an analyst at Goldman Sachs downgraded the stock’s rating and also the price target. The analyst believes that the global economic slowdown, which has already started affecting the semiconductor industry, is going to make things worse for the NAND memory chip manufacturer. Specifically, the analyst stated that the data storage manufacturer’s balance sheet needs to be monitored closely as the demand for memory chips continues to decline. The stock of Western Digital closed Friday’s trading session at $31.94, down $0.84 or 0.27% from its prior close.
Along with the overall fragility seen in the NAND domain, Hari also warns about traditionally narrow margins. As per the analyst’s assessment, the non-GAAP margin could decline from roughly 28% this year to about 17% next year. Notably, the NAND chips are currently priced below “cash-cost”, as per sources of the analyst.
In a note to clients, the analyst forecast that quarterly operational EBITDA, excluding revenues from the company’s joint venture with Kioxia, will remain in the red until next year as both the top (sales) and bottom (operating income) lines are under tremendous pressure. Nevertheless, Hari expects a rebound in the calendar year (CY) 24 as fundamentals start stabilizing.
A mix of the aforesaid aspects, according to the analyst, could threaten the company’s competitive footing, specifically as the net debt to TTM (trailing-twelve-months) EBITDA (earnings before interest, taxes, depreciation, and amortization) increases in the forthcoming quarters.
In his conclusion, the analyst stated that he anticipates investors scrutinizing the net leverage on Western Digital’s balance sheet more closely, and this might hamper operations in the near future.
Based on the aforesaid facts and arguments, Toshiya Hari downgraded the stock of Western Digital to “Sell” from “Neutral.” The Goldman Sachs analyst also downgraded the price target to $31 from the prior level of $43.
Interestingly, investment advisor Benchmark has downwardly revised its outlook for Western Digital (WDC) after Micron (MU) highlighted worries about a weaker-than-anticipated rebound and its related squeezing effect on WDC’s cash flow scenario.
In addition to Goldman Sachs, Seeking Alpha’s quant algorithm, popular for consistently surpassing market performance, has given a “hold” rating for the stock.
The downward revision of the rating is expected to keep the stock of Western Digital slightly bearish in the days ahead.
The historical price chart indicates that the stock of Western Digital is declining after facing resistance at 36.5. Additionally, the stock is trading below its 50-day moving average while the stochastic indicator is in the bearish zone. Therefore, we anticipate the stock price of Western Digital to remain in a downtrend in the short term.
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