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Bear of the Day: Western Digital (WDC)

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Western Digital (WDC - Free Report) has been one of the worst-performing stocks in the computer storage industry this year. The company’s earnings outlook is also much worse than it was not too long ago, as the industry appears to be headed in the wrong direction. 


Western Digital’s quarterly revenues slipped roughly 3% from the year-ago period to $5.03 billion, which missed the Zacks Consensus Estimate of $5.14 billion. WDC’s fiscal Q1 2019 revenues, which it reported near the end of October, also fell 1.7% sequentially.

Meanwhile, at the bottom end of the income statement, Western Digital’s adjusted quarterly earnings sunk 14.6% from the prior-year quarter to $3.04 per share. The company pointed to falling flash prices, among other broader headwinds, as major reasons for its decline. “In response to these conditions, we are taking immediate actions to align our flash output with projected demand,” CEO Steve Milligan said in a company statement.

Western Digital specializes in data storage devices and solutions, and sells products under the SanDisk and WD brands, among others. The company has suffered as the demand for data storage slows along with the broader chip market, which includes the likes of Micron (MU - Free Report) , Lam Research (LRCX - Free Report) , and others.

Things continued to get worse for Western Digital after the Wall Street Journal reported Monday that Apple (AAPL - Free Report) has cut production orders for all three of its newest iPhone models, which helped send shares of WDC and other tech stocks down.

Stock Price Movement

Shares of Western Digital dropped 3.20% in regular trading hours Monday to touch $45.11 per share. WDC stock is down roughly 44% since the start of the year, which falls well below its industry’s 8.5% average decline. Shares of WDC have plummeted 30% in the last three months and are down over 50% during the past 52 weeks after trading as high as $106.96 per share.

We can, however, see that Western Digital stock is still up roughly 364% over the last decade. But this now includes two substantial downturns. 

Outlook & Earnings Trends  

Now that we have covered some of Western Digital’s price movement and recent news, let’s look to see what’s next.

Our current Zacks Consensus Estimate is calling for the firm’s quarterly revenues to fall by 19.3% to reach $4.31 billion. Plus, Western Digital’s fiscal year revenues are projected to sink by over 12% to hit $18.13 billion.

The bottom end of the income statement appears even worse for the data storage firm. Western Digital’s adjusted quarterly earnings are expected to tumble nearly 60% to hit $1.59 per share. Plus, WDC’s current fiscal year EPS figure is projected to plummet by 50%.  

Investors also need to understand that Western Digital has received a substantial number of negative earnings estimate revisions over the last 30 days. The charts below help us see just how much worse the firm’s earnings outlook appears.


Bottom Line

Western Digital is currently a Zacks Rank #5 (Strong Sell) based mostly on its negative earnings estimate revision activity. The company also sports a “D” grade for Momentum in our Style Scores system.

Investors interested in this industry might instead consider NetApp (NTAP - Free Report) or Netlist (NLST - Free Report) , which are both currently Zacks Rank #2 (Buy) stocks.

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