Western Digital falls as Goldman Sachs downgrades, citing concerns about its balance sheet
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Western Digital (NASDAQ:WDC) shares fell nearly 5% in premarket trading on Thursday as Goldman Sachs downgraded the storage company, citing concerns about its balance sheet heading into next year.
Analyst Toshiya Hari cut the firm's rating on Western Digital (WDC) to sell from neutral and lowered the price target to $31 from $43, noting that pricing for NAND in recent days is now below "cash-cost," citing multiple sources, as companies attempt to work down inventories.
"Given our expectation for a severe memory industry downturn, and historically low trough gross margins by extension, we are downgrading Western Digital to Sell ... as 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," Hari wrote in a note to clients.
Conversely, Hari reiterated the firm's buy rating on Micron Technology (MU), noting that the dynamic random access memory market should lead to "normalized earnings" soon, due to "favorable competitive dynamics," even when accounting for recent pricing trends.
Last month, Micron Technology (MU) said its outlook for 2023 has continued to worsen.
Investment firm Benchmark lowered its estimates for Western Digital (WDC) following Micron's (MU) comments, citing "concerns over a weaker than expected recovery and its associated drain on Western Digitalâs cash position."
Analysts are largely cautious on Western Digital (WDC). It has a HOLD rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Additionally, Seeking Alpha's quant system, which consistently beats the market, rates WDC a HOLD.