Citi Sees Near-Term Fundamental Weakness In Western Digital

Citi’s David Phipps mentioned that Western Digital Corp WDC was “an industry leader in both its target markets,” with the company holding the largest share of hard disk drives.

Western Digital's Credit

Phipps initiated coverage of the company's credit with a Market-Weight rating.

“Our Market-Weight reflects near-term fundamental organic weakness, anticipated volatility for this relatively new leveraged finance industry, attractive yield, relative value, asset coverage and projected moderate free cash flow,” the analyst explained.

Secured-Term Loans

Phipps initiated coverage of the company’s secured-term loan and secured notes due 2023 with a Buy rating.

Related Link: Morgan Stanley Cuts Western Digital's Target From $53 To $48 Following Outlook

The analyst stated that the rating reflected yield close to 6 percent, with about 2.5x leverage and 2x asset coverage, which included Western Digital equity worth approximately $13 billion.

Phipps expects the company to reduce debt “when possible” and achieve that targeted fundamental stability

The analyst initiated secured term loan A due 2021 with a Neutral rating, which “reflects considerations for the other WDC secured debt, but reduced yield near 4 percent and unanticipated near-term debt pay down.”

Senior Notes

Phipps also initiated Western Digital’s senior notes due 2024.

The rating reflects yield close to 10 percent, with about 3.5x leverage and 1.5x asset coverage, which includes Western Digital’s equity worth about $13 billion, free cash flow targets, expected credit volatility and targeted fundamental stability.