Shares of disk drive maker Western Digital (WDC) are off 99, or 2.5%, at $38.79, amidst speculation the company has run into some roadblocks with European regulators over its deal to acquire the hard drive operations of Hitachi (6501JP).
Western said just last month that it was confident it would win final approval for the deal from regulators. The deal was expected by the Street to add measurably to Western’s earnings per share.
In a note to clients this afternoon, Brean Murray Carret & Co. analyst Ananda Baruah reiterated a Buy rating on Western stock and a $42 price target, writing that the financials of Western even on its own still support that price if a deal falls through:
For CY12 EPS, standalone WDC could earn $6.00 – $7.00 (we�re now at $6.21) and by year-end could have $15 – $20 in net cash. At 4x $6.00 – $7.00 plus $15 – $20 in net cash, you can get to $40 – $45 [�] We believe the combined WDC-Hitachi could earn as much as $9.50 – $10.50 in CY12 EPS (assuming the deal closes in March), and close the year with $2 – $4 in net cash, also placing it in the same range.
Competitor Seagate Technology (STX) could conceivably trade lower if the deal fell through, as that could portend mean less consolidation, and more volatility, in the drive industry, writes Baruah.
Seagate shares are currently down 69 cents, or 2.5%, at $26.80.
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