Benzinga - Shares of Western Digital Corp (NASDAQ: NASDAQ:WDC) fell sharply in the pre-market on Thursday.
The San Jose, California-based company is poised for historically low gross margins, with a severe downturn in the memory industry, according to Goldman Sachs (NYSE:GS).
The Analyst: Toshiya Hari downgraded the rating for Western Digital from Neutral to Sell, while reducing the price target from $43 to $31.
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The Thesis: The company’s non-GAAP gross margin could contract from around 28% in 2022 to around 17% in 2023, with an estimated decline in NAND ASPs by around 38% next year, Hari said.
“Furthermore, it is unlikely that management will be able to fully offset this headwind with judicious opex management, in our view, and as such we model a negative EBIT margin of 7% in CY23,” the analyst wrote.
“We believe net leverage on the company’s balance sheet is likely to come under greater scrutiny by investors, and may constrain operating activities in the near-term, presenting a risk to WD’s post-cycle competitive position,” he added.
WDC Price Action: Shares of Western Digital had declined by 4.91% to $34.07 in the pre-market on Thursday.
It's worth noting that the latest price target for Western Digital rival Micron Technology (NASDAQ: NASDAQ:MU) was reported earlier this week by Deutsche Bank (ETR:DBKGn). The analyst downgraded the stock, and set a price target for $55.00, expecting Micron to rise within 12 months — a possible 4.07% upside.
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