It’s time to move to the sidelines on Western Digital , according to Deutsche Bank. Analyst Sidney Ho downgraded shares to hold from buy, citing weak demand ahead. The analyst also lowered her price target on the stock to $40 from $56. The new target implies upside of roughly 9% from Monday’s close. “We believe WDC’s F1Q (Sep) revenue and EPS are tracking below the low end of guidance, and F2Q (Dec) outlook are also likely to be meaningfully below current Street estimates,” Ho wrote in a Monday note. “Demand has deteriorated throughout the current quarter with MU and STX already revised their outlook, but our recent industry checks suggest inventory adjustments and Flash ASP erosion will likely continue at least for the next two quarters, and we note that demand is seasonally weak in 1H CY23,” Ho added. Western Digital is down nearly 44% this year, and about 47% off its 52-week high, as the data storage manufacturer contended with softening demand and supply chain issues. The analyst expects those concerns will continue heading into the holiday season, citing checks with the supply chain that pointed to further headwinds. Ho recommends investors hold off on the stock until supply-demand balance returns. “Of particular concern to us is that WDC now expects its free cash to be negative in FY23 (ending June 2023),” Ho wrote. “While we do not see significant downside to the current share price given the stock is trading at ~1.0x EV/Sales, we also struggle to see any meaningful upside in the next 6-9 months as oversupply in the flash memory market persists and macro concerns intensify.” The stock dipped 1.7% in Tuesday premarket trading. —CNBC’s Michael Bloom contributed to this report.
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