Computer hard drive- and flash memory-maker Western Digital (WDC -2.59%) stock is on a run this morning, up 8.5% as of noon EDT the day after the company announced plans to restructure its business into two separate product units.
Yesterday after the close of trading, Western Digital announced that Flash and Hard Disk Drives (HDD) will split up, each being led by a dedicated "general manager" to better promote "growth, profitability and agility." Former Cisco executive Robert Soderbery will run Flash, while the leader of HDD has yet to be named.
Expectations of improved focus and specialization within each unit could be one reason Western Digital stock is going up on the news. Now here's another reason,
Two separate Wall Street analysts upgraded Western Digital stock this morning, according to TheFly.com, with Craig-Hallum upping the stock's rating to "buy" and Cleveland Research removing its sell rating and going to "neutral."
Craig-Hallum believes that separating out Flash from HDD may be preparatory to spinning off one unit or the other in a pseudo IPO, a move that might unlock some shareholder value -- and grow the stock price. Cleveland adds that whether or not a spin-off occurs, demand for memory is improving in both cloud computing (server farms) and mobile devices. In general, pricing declines are expected to trough in the first half of next year and resume rising thereafter. Craig-Hallum also sees the PC industry showing stronger near-term demand for hard disk drives, followed by improvements in demand for Flash memory next year.
With these two catalysts on the horizon -- improved demand and the potential for a spin-off -- Cleveland estimates that Western Digital stock could hit $62 within a year -- up more than 55% from today's prices.