Sell Western Digital Stock Because Its Rally Has Gone Too Far, Analyst Says

Western Digital stock’s (ticker: WDC) big surge over the past month is an opportunity to take profits, according to Benchmark.

The company is a leading maker of NAND flash memory, which is used in smartphones and solid-state drives. The company also manufactures mechanical hard drives.

The back story. Western Digital stock has risen more than 30% in the past month. The shares rallied dramatically over the past week after its competitor Micron’s fiscal-third-quarter results beat expectations last Tuesday.

Micron’s outlook for the current quarter ending in August was a mixed bag, but chip investors found comfort from the company’s commentary that many customers have worked down their chip inventory levels.

What’s new. Benchmark analyst Mark Miller on Tuesday lowered his rating to Sell from Hold for Western Digital shares, predicting that a permanent turnaround in memory prices will take longer than expected.

“While we see some reasons for optimism, it already appears to be more than fully priced into the shares,” he wrote.

Western Digital stock was down 2% to $48.64 on Tuesday. The company didn’t immediately respond to a request for comment.

The company had a power outage at its Japan facilities last month, which will limit its ability to take advantage of any gains in chip prices, the analyst noted.

“The supply shortfall by Western Digital and Toshiba may also have less of an impact on chip pricing than some bullish investors believe,” he wrote. “We also believe that the large available industry inventory in conjunction with the expected supply by the other NAND manufacturers will temper upward pressure on prices.”

Looking ahead. The analyst established a $40 price target for Western Digital stock.