RBC Also Lowers Rating for Western Digital

NAND oversupply estimates drag down Western Digital

In this series, we have seen how several investment banks including Goldman Sachs (GS) and Evercore ISI are concerned that the declining demand in memory chips could impact semiconductor stocks this year.

RBC Capital’s Amit Daryanani was the latest to downgrade Western Digital (WDC) stock from “outperform” to “perform.” Daryanani reduced WDC’s 12-month price target by 26% from $95 to $70.

RBC Also Lowers Rating for Western Digital

Daryanani commented, “We think NAND oversupply will persist through mid-2019 and gross margins are unlikely to stabilize for next several quarters.” These near-term trends are likely to pressure profit margins and revenue growth for WDC.

NAND average selling price to fall by low double digits

The average selling prices (or ASPs) for NAND (negative AND) are estimated to fall by low double digits in the first half of 2019, which is similar to the cycle witnessed in the 2014–15 period where declining prices coupled with sluggish demand impacted semiconductor revenue.

Western Digital’s stock has fallen over 35% in the trailing 12-month period despite the company’s revenue and earnings beat in the last four quarters. WDC managed to beat earnings estimates of $3.49 by 3.4% with reported EPS (earnings per share) of $3.61 in fiscal Q4 2018.

WDC also beat earnings estimates of $3.3 in fiscal Q3 2018 by 10% and earnings estimates of $3.79 in Q2 2018 by 4.2%. However, analysts expect WDC’s earnings to decline 0.5% in fiscal Q1 2019, 0.4% in fiscal Q2 2019, and 1.2% in fiscal 2019, which has dragged the stock lower in 2018.