Shares of storage technology companies Western Digital (WDC) and Seagate Technology (STX) are on the rise after two firms upgraded the stocks to buy-equivalent ratings this morning, citing benefit from NAND shortages.  

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BUY WESTERN DIGITAL: In a research note this morning, JPMorgan analyst Rod Hall upgraded Western Digital to Overweight from Neutral and raised his price target on the shares to $116 from $80. The analyst told investors that the shortage of NAND flash memory should boost average selling prices and hard disk drives demand, while highlighting ongoing stabilization of the PC market. Hall also noted that the company still has “significant potential” for cost reductions as it realizes synergies from its HGST and Sandisk acquisitions. Furthermore, the analyst believes that a potential acquisition of Toshiba’s (TOSYY, TOSBF) memory unit is “doable,” with a buyout being EPS accretive if financed with debt. However, the reported price levels of $27B may not be favorable for Western Digital, he contended.

BUY SEAGATE: Also bullish on another memory/disk drive maker was Longbow analyst Joe Wittine, who upgraded Seagate to Buy from Neutral with a $100 price target. The analyst told investors in a research note of his own that with the improvement in hard disk drive fundamentals, 2017 earnings beats are likely as “HDDs ride the coattails” of NAND supply shortages. HDD industry utilization is already near-full following the PC recovery and post-MOFCOM factory rationalization, he contended, adding that Seagate can respond to 2017 demand upside with healthy economics that could push HDD gross margin above 32%. Wittine also noted that stock valuation remains “approachable” despite the recent run, based on comps to the broad market, hardware peers, and high yield peers. Additionally, the analyst reiterated a Buy rating and a $100 price target on Seagate’s peer Western Digital, saying that NAND supply tightness can drive 2017 earnings per share upside. Long-term, the latter will benefit from ongoing data growth, much tighter HDD utilization, and accretion from Sandisk synergies and de-leveraging, Wittine added.

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