As Western Digital discusses the merger with Kioxia, is it time to buy?

On Thursday, Western Digital Corp (NASDAQ:WDC) shares plummeted nearly 4% after announcing plans to merge with Japanese chipmaker Kioxia. According to reports, the companies could reach a $20 billion stock merger agreement as early as mid-September.

Once the merger goes through, the two companies will become one of the largest memory chipmakers in the market, rivaling Samsung Electronics Co Ltd (KRX:005930). As a result, Western Digital seems poised to capitalize on the rapidly expanding market driven by 5G networks adoption and the remote working amid the pandemic.

Should you buy Western Digital shares after the pullback?

From a valuation perspective, Western Digital shares trade at a reasonable trailing 12-month P/E ratio of 25.12. On the other hand, its forward P/E of 5.68 makes the stock attractive to value investors.

Furthermore, analysts expect WDC’s earnings per share to grow by 61.40% this year before rising at an average annual rate of about 47.80 over the next five years. Therefore, its growth prospects will get growth investors excited ahead of the potential merger with Kioxia.

As a result, Western Digital shares could extend this year’s bull run, meaning it is not too late to buy the stock.

Technical overview: Western Digital stock price predictions for Q3 2021

Technically, Western Digital shares seem to be trading within a descending channel formation in the intraday chart. However, the stock price recently bounced off the trendline support to surge above the 100-day moving average.

Nonetheless, the WDC stock still has room left to run before hitting overbought conditions of the 14-day RSI. Therefore, investors can target extended rebound profits at approximately $68.56 or higher at $72.78.

On the other hand, the key support levels are $59.04 and $54.39. 

Bottom line: the case for buying Western Digital stock price rebound

In summary, although Western Digital shares pulled back on reports of a potential merger with Japanese chipmaker, Kioxia, the stock seems substantially undervalued based on its forward P/E ratio.

Moreover, Thursday’s pullback prevented the WDC stock price from hitting overbought conditions, leaving room for more upward movement. Therefore, Western Digital shares seem poised for a rebound that could extend towards the resistance levels.