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Western Digital (WDC) Q4 Earnings: Can the Stock Surprise?
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Western Digital Corp. (WDC - Free Report) is set to report fourth-quarter fiscal 2016 results on Jul 28. Last quarter, the company posted a negative earnings surprise of 3.20%. Let’s see how things are shaping up for this announcement.
Factors to Consider
The world’s leading hard-disk drive (HDD) manufacturer recently updated its fiscal fourth-quarter outlook to reflect the integration of its SanDisk acquisition. The company now expects revenues of $3.46 billion, slightly higher than its previous projection of $3.35 billion to $3.45 billion.
Western Digital also raised its non-GAAP earnings guidance to 72 cents per share, above its prior guidance of 65–70 cents.
Note that this was the second time that Western Digital has updated its fiscal fourth-quarter outlook in an atempt to accommodate the impact of the integration of SanDisk.
Western Digital is counting heavily on SanDisk to keep the company afloat amid a choppy business environment. Notably, Western Digital derives the bulk of its revenues from the sale of HDDs, which are used mainly by PC manufacturers. The company is the largest HDD manufacturer in the U.S. with a 44% market share, followed closely by Seagate Technologies’ (STX - Free Report) 40% share. In spite of its dominant position, the persistent decline in PC sales has been hurting Western Digital’s HDD shipments over the past several quarters, which in turn dented its revenues.
As a result, the company has been intent on lowering its dependence on PC storage and shifting focus toward the rapidly growing flash and cloud storage businesses to help boost the top line.
It hopes that the acquisition of SanDisk will open newer avenues for growth for Western Digital by helping the company gain traction in Solid State Drive (SSD), a new computer storage technology. The merger will lead to economies of scale, lower costs, greater market reach and wider product breadth among other things. The company will also be able to offer competitive solutions in cloud-based computing, which has taken the digital storage solution space by storm over the past couple of years.
However, it is still too early to determine the extent to which Western Digital will benefit from the SanDisk acquisition. An increased debt burden is likely to be an added drag on the company’s bottom line.
Our proven model does not conclusively show that Western Digital will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: Western Digital has an Earnings ESP of 0.00% since both the Most Accurate estimate and the Zacks Consensus Estimate stand at 72 cents.
Zacks Rank: Western Digital’s Zacks Rank #3, when combined with a 0.00% ESP, makes surprise prediction difficult.
Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Stocks to Consider
Here are a couple of stocks that you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Open Text Corp. (OTEX - Free Report) , with an Earnings ESP of +1.10% and a Zacks Rank #1.
CenturyLink, Inc. , with an Earnings ESP of +3.33% and a Zacks Rank #3.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
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Western Digital (WDC) Q4 Earnings: Can the Stock Surprise?
Western Digital Corp. (WDC - Free Report) is set to report fourth-quarter fiscal 2016 results on Jul 28. Last quarter, the company posted a negative earnings surprise of 3.20%. Let’s see how things are shaping up for this announcement.
Factors to Consider
The world’s leading hard-disk drive (HDD) manufacturer recently updated its fiscal fourth-quarter outlook to reflect the integration of its SanDisk acquisition. The company now expects revenues of $3.46 billion, slightly higher than its previous projection of $3.35 billion to $3.45 billion.
Western Digital also raised its non-GAAP earnings guidance to 72 cents per share, above its prior guidance of 65–70 cents.
Note that this was the second time that Western Digital has updated its fiscal fourth-quarter outlook in an atempt to accommodate the impact of the integration of SanDisk.
Western Digital is counting heavily on SanDisk to keep the company afloat amid a choppy business environment. Notably, Western Digital derives the bulk of its revenues from the sale of HDDs, which are used mainly by PC manufacturers. The company is the largest HDD manufacturer in the U.S. with a 44% market share, followed closely by Seagate Technologies’ (STX - Free Report) 40% share. In spite of its dominant position, the persistent decline in PC sales has been hurting Western Digital’s HDD shipments over the past several quarters, which in turn dented its revenues.
As a result, the company has been intent on lowering its dependence on PC storage and shifting focus toward the rapidly growing flash and cloud storage businesses to help boost the top line.
It hopes that the acquisition of SanDisk will open newer avenues for growth for Western Digital by helping the company gain traction in Solid State Drive (SSD), a new computer storage technology. The merger will lead to economies of scale, lower costs, greater market reach and wider product breadth among other things. The company will also be able to offer competitive solutions in cloud-based computing, which has taken the digital storage solution space by storm over the past couple of years.
However, it is still too early to determine the extent to which Western Digital will benefit from the SanDisk acquisition. An increased debt burden is likely to be an added drag on the company’s bottom line.
WESTERN DIGITAL Price and EPS Surprise
WESTERN DIGITAL Price and EPS Surprise | WESTERN DIGITAL Quote
Earnings Whispers
Our proven model does not conclusively show that Western Digital will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: Western Digital has an Earnings ESP of 0.00% since both the Most Accurate estimate and the Zacks Consensus Estimate stand at 72 cents.
Zacks Rank: Western Digital’s Zacks Rank #3, when combined with a 0.00% ESP, makes surprise prediction difficult.
Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Stocks to Consider
Here are a couple of stocks that you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Open Text Corp. (OTEX - Free Report) , with an Earnings ESP of +1.10% and a Zacks Rank #1.
CenturyLink, Inc. , with an Earnings ESP of +3.33% and a Zacks Rank #3.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>