Shares of leading data storage manufacturer Western Digital (NASDAQ: WDC) jumped 6.22% in the morning session after Exane BNP Paribas analyst upgraded the stock's rating from Neutral to Outperform (Buy) and assigned a price target of $58. The target price indicates a potential 24% upside from where shares were traded when the upgrade was announced. In a separate development, Bloomberg (citing unnamed sources) reported that Kioxia Holdings' lenders are planning to refinance ¥2T ($14B) in loans to help fund the merger with Western Digital's flash memory business, which is still under discussion. Under the merger deal, Western Digital would hold about 50.5% of the combined holding company, while Kioxia would hold the remaining 49.5%.
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What is the market telling us:
Western Digital's shares are quite volatile and over the last year have had 18 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The biggest move we wrote about over the last year was 4 months ago, when the stock gained 7.2% on the news that the company is stepping up merger talks with Kioxia Holdings Corp. According to the report, the deal would give Kioxia a 43% stake in the merged entity, with Western Digital holding a 37% stake and the rest going to existing shareholders. Kioxia recently put its IPO plans on hold due to the weak flash-memory market. The memory chip market is in a tough spot as flash memory prices plummet and demand fails to pick up amid bloated inventories.
Western Digital is up 47.4% since the beginning of the year. Investors who bought $1,000 worth of Western Digital's shares 5 years ago would now be looking at an investment worth $770.94.
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