Key insights
- Western Digital is exchanging a portion of its Sandisk shares for its own stock held by institutional investors. Both companies' stocks rose on the news, indicating differing investor perceptions of value. While Western Digital appears to view its own stock as a better bargain based on P/E ratios, institutional investors seem to prefer Sandisk shares. This suggests potential divergence in sector valuations and investor sentiment within the semiconductor industry.
Sandisk (SNDK +5.26%) stock jumped 5.8% through 10:15 a.m. Friday -- and for a most curious reason.
In a filing with the SEC yesterday, Western Digital (WDC +6.25%) confirmed it is "exchanging" 1,038,681 shares of Sandisk stock for shares of Western Digital currently held by "certain institutional investors."
This is curious because... investors in both semiconductor companies appear to think they're getting the better deal. Not only is Sandisk stock up 5.8%, but Western Digital stock is up 6.5%!
S&P Global Market Intelligence data confirm that at last report, Western Digital owned 1.2% of Sandisk stock -- approximately 1.78 million shares. "Exchanging" 1 million of those shares for its own stock will reduce WD's stake in Sandisk to a mere 0.5%.
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So what does that mean?
From one perspective, it means Western Digital thinks its own stock is a better bargain than SanDisk's. You can call a transaction an "exchange," but so is any sale or purchase. Effectively, what WD is doing today is selling Sandisk stock and buying WD stock instead.
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Looked at from the other side of the transaction, "certain institutional investors" seem to have come to the opposite conclusion, and are happy to unload their Western Digital stock for more shares of Sandisk!
Who's right, Western Digital or the institutions? From a value investor's perspective, I lean Western Digital's way. Priced under 32 times trailing earnings, WD stock costs less than half the 64.3-times price-to-earnings ratio on Sandisk. It's the more obvious value stock.
On the other hand, analysts predict Sandisk will nearly triple its profits in 2027, while WD's profits are set to fall. Forward P/E ratios have the two stocks trading neck and neck -- 29x forward earnings for Sandisk; 28x earnings for WD.
With Sandisk the faster grower, it's probably the best bet for growth at a reasonable price.