If you are still holding on to shares of Western Digital Corp. (WDC - Free Report) in your portfolio, it is time you dump them as chances of favorable returns in the near term appear bleak.
Dropping Western Digital can maximize investor’s portfolio returns as it has witnessed a significant price decline in the past one year. It has also witnessed negative earnings estimate revisions for the current quarter and the current year. Further, the company’s Zacks Rank #5 (Strong Sell) only highlights its innate weakness.
Shares of Western Digital have lost 39.9% of its value year over year compared with the industry’s decline of 10.4%.
Let’s delve deeper and analyze the factors dragging the company down.
Why Should You Avoid Western Digital?
Western Digital reported dismal first-quarter fiscal 2019 non-GAAP earnings of $3.04 per share missing the Zacks Consensus Estimate by 2 cents and declining 14.6% from the year-ago quarter. Moreover, the figure has declined 15.8%, sequentially.
Revenues fell 3% year over year to $5.03 billion and missed the Zacks Consensus Estimate of $5.14 billion. Further, the figure slumped 1.7% sequentially.
The company shipped 34.1 million HDDs at an average selling price (ASP) of $72. The reported shipments were lower than the year-ago figure of 42.2 million. The company intends to temporarily reduce flash output.
For the full year 2019, we have seen eight estimates moving south in the past 60 days. This trend has caused the consensus estimate to trend downward, falling from $11.71 per share two months ago to its current level of $7.30 per share.
Additionally, Western Digital has seen six downward estimate revisions for the current quarter, against none in the opposite direction, dragging the consensus estimate down to $1.59 per share from $3.19 per share in the past 60 days.
The company also provided sluggish revenue guidance for the second quarter of fiscal 2019.
For the second quarter, revenues are expected to be in the range of $4.2-$4.4 billion. The mid-point ($4.3 billion) is likely to miss the Zacks Consensus Estimate of $4.31billion.
Management projects non-GAAP earnings between $1.45 and $1.65 per share. The mid-point ($1.55 per share) is significantly lower than the Zacks Consensus Estimate of $1.59.
Western Digital recently announced that its chief financial officer (CFO), chief strategy officer and president, Mark Long, has decided to step down. This sudden move has added to the woes as Long was primarily responsible for devising the company’s growth strategy.
Further, sluggishness in client compute hard drives and slower-than-expected trends in flash market pricing remains a headwind. Geopolitical tension in China, changes in monetary policy and foreign exchange fluctuations had also impacted the first-quarter’s results. Moreover, stiff competition from Seagate, Hitachi, Samsung and Intel in the storage and pricing pressure add to woes. Customer concentration also remains a headwind.
Stocks to Consider
Some better-ranked stocks in the broader technology sector are Upland Software (UPLD - Free Report) , Tesla, Inc. (TSLA - Free Report) and Twitter, Inc. (TWTR - Free Report) , each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Upland Software, Tesla and Twitter is currently pegged at 20%, 35% and 22.1%, respectively.
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