S&P Global Ratings upgraded its credit rating for Western Digital Corp. (NASDAQ:WDC) to 'BBB-' from a lower notch on Monday, citing the company's steps to reduce leverage and expectations that it will hold a net cash position. The ratings agency assigned a stable outlook.
The move follows a recent transaction in which Western Digital exchanged 5.8 million shares of Sandisk at $545 per share in a deal to retire debt. The company has been actively shrinking its debt load since the Sandisk spin-off. In the prior year, Western Digital used Sandisk shares to cover part of its term loan A-3 and applied cash to redeem $1.8 billion of its 4.75% notes maturing in 2026.
S&P's view assumes the firm will largely eliminate its outstanding debt other than $1.6 billion in convertible notes, and that Western Digital will maintain a net cash position going forward. The company also has access to an undrawn $1.25 billion revolving credit facility. In addition, $265 million in preferred shares have been converted into common stock.
On the operational front, S&P expects Western Digital's revenue to expand in the high-20% range for fiscal 2026, which ends on July 3, 2026. The ratings firm projects an EBITDA margin improvement of roughly 700 basis points in the current fiscal year. That margin uplift is attributed to stronger demand, stable pricing, accelerated adoption of technologies such as UltraSMR and ePMR, and operating-leverage benefits as expenses are amortized across higher sales volumes.
S&P highlighted rising demand for data storage driven in part by workloads tied to artificial intelligence training and inference, which has bolstered demand for hard disk drives. The agency forecasts free cash flow of more than $2.5 billion in fiscal 2026, compared with $1.2 billion in fiscal 2025, and expects Western Digital to allocate all of that free cash flow to dividends and share repurchases.
Market visibility is strong, according to the ratings firm: Western Digital is largely sold out for calendar 2026 and has been securing long-term contracts for calendar 2027. The upgrade reflects the interplay of balance-sheet repair and operating improvements that S&P projects will generate stronger margins and higher cash conversion.