ThinkEquity initiated coverage of Western Digital Corp. (NYSE:WDC) with a buy rating and $42 price target, saying accelerating growth of digital data will continue driving strong unit Hard Disk Drive (HDD) growth in the future.

Western Digital has been gaining market share over the last five years, from 17.5 percent in 2005 to its current 31 percent. The brokerage said the company's cost-leadership would be a significant source of competitive advantage, which could enable it to sustain its share gains in the future.

...we believe potential improvement in the industry competitive dynamic will benefit all players, particularly WDC, analyst Rajesh Ghai wrote in a note to clients.

Ghai believes Western Digital's proposed merger with Hitachi GST (HGST) is positive, given his belief that industry consolidation will likely reduce irrational competitive behavior in the industry.

We are also encouraged that the HGST acquisition provides WDC with an Enterprise presence in HDD and Solid State Drive (SSD) segments, the analyst said.

Ghai expects pricing and margins to improve in the second half of calendar year 2011 as the oversupply conditions are slowly worked out from the market in the first half, especially after the Hitachi GST takeout.

The analyst projects Western Digital to earn $3.07 a share on revenue of $9.35 billion in fiscal 2011. Wall Street expects earnings of $3.05 a share on revenue of $9.33 billion, according to analysts polled by Thomson Reuters.

Shares of California-based Western Digital closed Wednesday's regular trading session at $37.71 on the NYSE.