The data storage industry is experiencing significant growth, due to the rising penetration of Internet of Things (IoT) in different industries such as retail, manufacturing, and healthcare, as well as an increase in the adoption of cloud computing.
According to a Grand View Research report, the data storage market was worth $53.1 billion in 2018 and is projected to grow at a Compounded Annual Growth Rate (CAGR) of 12.5% between 2019 to 2025.
Using the TipRanks Stock Comparison tool, let us compare two semiconductor companies, Western Digital and Micron Technology, and see how Wall Street analysts feel about these stocks.
Western Digital (NASDAQ: WDC)
Western Digital Corp. is a developer, manufacturer, and provider of data storage devices and solutions. It addresses key end markets, including client devices, data center devices, and solutions.
Yesterday, Western Digital reported Q4 and FY21 earnings with Q4 revenues of $4.9 billion, up 15% year-over-year and surpassing the consensus estimate of $4.53 billion. Moreover, the company’s adjusted earnings came in at $2.16 per share, beating Street estimates of $1.49 per share.
When it comes to WDC’s financial outlook for Q1 FY22, the company expects revenues to range between $4.9 billion and $5.1 billion. Adjusted EPS is anticipated to come in between $2.25 to $2.55 per share in Q1.
Following the earnings release, Robert W. Baird analyst Tristan Gerra reiterated a Buy and a price target of $100 (52.9% upside) on the stock. While Gerra termed the Q1 guidance “conservative,” the analyst was also of the opinion that it indicated underlying ongoing recovery.
Gerra commented, “Our positive outlook on the semiconductor upcycle for next year, high utilization rates and strong demand in HDDs [hard disk drives] including enterprise recovery, combined with a tight supply/demand outlook for NAND, lead us to believe Western Digital will return to its F2018 EPS peak.”
The analyst’s bullish outlook on the stock is supported by “tight utilization rates and strong demand in HDDs notably benefiting from enterprise recovery, combined with a tight supply/demand outlook for NAND.”
Indeed, at the company’s earnings call, WDC explained that its strong performance in Q4 was driven by the rise in demand from its cloud customers and the start of a demand recovery in the enterprise market. (See Western Digital stock chart on TipRanks)
WDC also addressed the NAND shortages at its Q4 earnings call. David Goeckeler, CEO, stated, “In the fourth quarter, demand for our flash products was greater than we could supply in a number of end markets. In the face of both component and NAND shortages, we continue to strategically shift bits to meet customer needs while driving growth in both revenue and gross margin.”
When it comes to deleveraging, in fiscal Q4, WDC paid off $212 million in debt and for FY21, paid off a debt of $886 million. At the end of Q4, the company’s gross debt stood at $8.8 billion.
In Q1 so far, WDC has already made a discretionary debt payment of $150 million. Currently, Western Digital’s gross leverage ratio is 2.4 times versus 2.8 times a year back.
Analyst Gerra views this deleveraging as a positive that will “drive multiple expansion over time.”
Moreover, the analyst expressed optimism about the company’s future, saying, “While business model sees the near-term impact of inventory digestion in data centers and PCs along with overall macro weakness, we expect operating leverage longer term, driven both easing comps and the introduction of new architectures.”
Turning to the rest of the Street, consensus is that Western Digital is a Moderate Buy, based on 6 Buys and 3 Holds. The average Western Digital price target of $98.43 implies an approximately 51.6% upside potential to current levels.
Micron Technology (NASDAQ: MU)
Micron Technology has a portfolio of memory and storage products including DRAM, NAND, and NOR products through the Micron and Crucial brands.
The company reported a strong improvement in its recent fiscal Q3 results from the same period a year back. Revenue jumped 36.4% year-over-year to $7.4 billion topping consensus estimates of $7.23 billion. Moreover, adjusted EPS of $1.88 beat consensus estimates of $1.71.
At the same time, MU also announced the sale of its factory in Lehi, Utah to Texas Instruments (TI) for an economic value of $1.5 billion, comprising $900 million in cash from TI and $600 million in value from select tools and other assets.
In fiscal Q4, Micron expects revenue of $8.2 billion with a possible deviation of $200 million. Adjusted diluted EPS is projected to come in at $2.30 with a potential deviation of $0.10.
Earlier this week, Micron surprised investors by initiating a quarterly dividend of $0.10 per share, payable in cash, on October 18, to shareholders of record as of the close of business on October 1, 2021. (See Micron stock chart on TipRanks)
Discussing the dividend, Micron Technology President and CEO Sanjay Mehrotra said, “Initiating a common stock dividend reflects our confidence in Micron’s future and our commitment to creating compelling value for shareholders.”
Following the dividend announcement, Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy and a price target of $165 with an approximately 101.3% upside on the stock. Micron is the analyst’s top “Mother of All Cycles (MOAC) ‘cycle’ pick.”
Micron has repurchased shares worth $3 billion since the inception of the share repurchase program. Notably, the company has a share repurchase plan of up to $10 billion in place.
In its updated capital allocation strategy unveiled earlier this week, Micron showed its intent to have a more opportunistic approach to stock buybacks. The company wants to “add significant shareholder value by conserving cash to buy at larger discounts to intrinsic value.”
Considering MU’s share repurchase tactics, Mosesmann commented, “Micron is changing its share repurchase tactics to be cross-cyclical than yearly, to opportunistically be aggressive when shares are below their intrinsic value; as management believes is the case for the current August quarter.”
When it comes to capex spend in FY21, MU is targeting a spend slightly exceeding $9.5 billion. Analyst Mosesmann views this capex as “targeting stable long-term bit share, while in the short-term, making supply adjustments.”
Other positives for Micron, according to the analyst, are strong DRAM and NAND revenues and strengthening of its product portfolio in its end markets including data center, PC & Graphics, and Solid State Drives (SSDs).
Turning to the rest of the Street, consensus is that Micron Technology is a Strong Buy, based on 17 Buys and 5 Holds. The average Micron Technology price target of $116 implies an approximately 41.5% upside potential to current levels.
Bottom Line
While analysts are cautiously optimistic about WDC, they are bullish about Micron. However, based on the upside potential over the next 12 months, WDC seems to be a better Buy.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
