Western Digital Earnings: $42 FVE Intact; Storage Market Recovery Begins and Flash Spinoff Announced

We maintain our $42 fair value estimate for no-moat Western Digital after the firm reported a good first quarter and announced intentions to spin off of its flash chip business. We view the spinoff as value-neutral to shareholders as we don’t foresee any significant cost efficiencies gained as separate entities, but a cash infusion could help position the flash business for better growth. The market liked the announcement, and the stock is up about 6%. Western’s fiscal first-quarter results were positive, exceeding our expectations for revenue and profitability. Both HDD and flash markets showed signs of sequential improvement in the quarter, and management expects further gradual strengthening in the December quarter. We see shares as fairly valued.