Shares of Western Digital (WDC) are on the rise after the company reported better than expected third quarter results and guidance, sparking bullish commentary from several Wall Street analysts. Both Morgan Stanley and Bank of America Merrill Lynch upgraded the stock to Buy-equivalent ratings on NAND strength. However, Wells Fargo moved to the sidelines on Western Digital, citing valuation.

RESULTS: Last night, Western Digital reported third quarter adjusted earnings per share of $2.39 and revenue of $4.6B, both above consensus of $2.14 and $4.57B, respectively. The company also said it sees fourth quarter earnings per share of $2.55-$2.65 and revenue of $4.8B, with consensus at $2.13 and $4.6B. For 2017, Western Digital expects adjusted earnings per share of $12.00 and pro-forma revenue growth “that will be in line with” its long-term financial model of 4%-8%.

BUY WESTERN DIGITAL: In a research note this morning, Morgan Stanley analyst Katy Huberty upgraded Western Digital to Overweight from Equal Weight, with a $120 price target, citing rising NAND prices, 3D transition execution, and cost synergies that will drive increasing gross margins. Despite after market strength, Huberty told investors that she would be adding to positions ahead of catalysts that will drive margins higher. The company’s transition to 3D NAND is progressing ahead of plan, with 75% of bits on 3D this year. This improves its ability to participate in SSD demand, she noted. The analyst highlighted strong NAND bit growth and pricing carry into next calendar year, implying flattish earnings per share versus fears of a decline. Her peer at Bank of America Merrill Lynch also upgraded Western Digital to Buy and raised his price target on the shares to $120 from $95. Analyst Wamsi Mohan cited better industry trends in both hard disk drives and memory, and noted average selling price increases in NAND are driving gross margin strength. Management expects NAND tightness to continue through the second half of 2018, he pointed out. Additionally, several research firms increased their price targets on Western Digital’s shares, including Stifel, Cowen, Susquehanna, Needham and Craig-Hallum.

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