Western Digital Gains Ground On Review Of Strategic Alternatives

Key Insights

• Western Digital announces that it will review strategic alternatives following the pressure from an activist investor Elliott Investment Management. 
• The company may separate its Flash and HDD businesses to boost value for shareholders. 
• The announcement may serve as a material positive catalyst for Western Digital stock in the upcoming weeks. 

Western Digital Reviews Strategic Alternatives

Shares of Western Digital gained upside momentum after the company announced that it was “reviewing potential strategic alternatives aimed at further optimizing long-term value for its shareholders”.

Western Digital will evaluate a range of alternatives, including options for separating its Flash and HDD franchises.

This announcement is a result of the pressure from the activist investor Elliott Investment Management, which is trying to unlock more value for shareholders.

The general idea behind spin-offs is that separate businesses will get a higher valuation from markets. Not surprisingly, traders like the idea, so Western Digital stock opened with a gap up today and made an attempt to settle above multi-month highs.

What’s Next For Western Digital Stock?

Analyst estimates for Western Digital have been moving higher in recent months. Currently, the company is expected to report earnings of $7.72 per share in 2022 and $8.96 per share in 2023, so the stock is trading at 7 forward P/E.

Western Digital stock has moved away from yearly lows due to Elliott’s engagement. To have more upside, the company must present a plan. It should be noted that Western Digital and Elliott have signed a non-disclosure agreement, but rumors typically emerge during such processes.

The stock is trading at cheap valuation levels, so Western Digital has a decent chance to gain additional upside momentum in the upcoming weeks as some traders could be willing to bet on the success of the potential spin-offs.

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