Western Digital (WDC) Slashes EPS Guidance, Analyst Still Sees Attractive Valuation

Shares of Western Digital (NASDAQ: WDC) are down nearly 1% in premarket trading Thursday after the company cut its EPS guidance.

WD expects adjusted EPS in the third quarter in the range of $1.30 to $1.60, compared to the previous guidance of $1.50 to $1.80 and analyst expectations of $1.66.

It estimates Q3 revenue in the range of $4.2 billion to $4.4 billion, compared to the previous forecast of $4.45 billion to $4.65 billion, and analyst expectations of $4.55 billion.

The company anticipates an adjusted gross margin between 30% and 32%, compared to the consensus of 31.1%.

WD said operations at both Yokkaichi and Kitakami joint venture flash fabrication facilities returned to normal at the end of the last month. The company said its flash availability will be down by roughly 7 exabytes in Q3 and Q4 as the facilities reach full production output.

Citi analyst Jim Suva welcomes the update from WDC as investors now have more information related to the February announcement, when the company announced a contamination of materials used in its manufacturing process, and the associated negative impact.

“Our EPS estimates for the current and following 2 quarters move lower but beyond that largely unchanged. We would not be surprised if at a later date the supplier gives a reduction in price or the supplier or insurance helps WDC recoup much of the losses. We maintain our Buy rating and $75 target price, and view WDC as an attractive value tech stock which in 1-2 years may reinstate its dividend,” the analyst said.

Rosenblatt analyst Kevin Cassidy commented:

“We’ve previously highlighted that reduced NAND Flash output has changed the supply/demand ratio from oversupply to undersupply. This changed expectations for NAND Flash prices to increase 5% - 10% in the June quarter rather than decline 5% - 10%. Western Digital may only benefit somewhat by this price increase because the company may need to sell its higher cost/bit 2-bit/cell (MLC) devices to support strategic 3-bit/cell (TLC) customers.”

By Senad Karaahmetovic | [email protected]

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