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Western Digital Posts Disappointing Q3 Results

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Western Digital (NASDAQ:WDC) posted its financial results for the third quarter of fiscal 2020 (quarter ended April 3) on Thursday after the market bell. The stock fell 10% in after-hours trading on Thursday. Although the revenues met analysts’ consensus estimate, the earnings missed the estimates. Investors were disappointed because the company issued a lower-than-expected earnings outlook for the fourth quarter.

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Western Digital’s Q3 earnings

Western Digital generated revenue of $4.18 billion—an increase of 13.6% from the third quarter of fiscal 2019. The company met Wall Street analysts’ consensus revenue estimate of $4.18 billion. The company posted an adjusted net profit of $257 million during the quarter—a 424.4% rise YoY (year-over-year). In the third quarter, Western Digital reported an adjusted EPS of $0.85 compared to $0.17 in the third quarter of fiscal 2019. The earnings missed analysts’ consensus estimate of $0.93 per share.

The revenue from Western Digital’s Client Devices segment rose 12.7% YoY to $1.83 billion. The Data Center sales rose 22.3% YoY to $1.52 billion, while Client Solutions sales rose 2.1% YoY to $821 million.

According to a MarketWatch report, “The company said that its desktop hard drive and smart video hard drive demand was weaker because of the COVID-19 pandemic. Falling retail sales due to the pandemic also hurt the company’s sales towards the end of the quarter.”

Western Digital’s Q4 guidance

Western Digital has given a revenue guidance of $4.25 billion–$4.45 billion for the fourth quarter. The technology company also expects its fourth-quarter non-GAAP EPS to be $1.00–$1.40. Wall Street expected an adjusted EPS of $1.22 on sales of $4.31 billion. According to a ZDNet report, “Western Digital will face headwinds due to closed retailers and reopenings that will revolve around curbside pickup and less volume.”

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Analysts’ recommendations

Among the 32 analysts following Western Digital stock, 19 recommend a “buy”—down from 21 in the last month. About 13 analysts recommend a “hold”—up from 12 in the previous month. None of the analysts recommended a “sell” in the last month. Analysts’ mean target price on the stock is $64.94, which implies a 40.9% gain from the current level of $46.08. The consensus target price for the stock has fallen from $70.99 in April—a fall of 8.5%.

After the third-quarter earnings results, Cowen and Company decreased its target price on Western Digital stock from $75 to $70. RBC reduced its target price on the stock from $85 to $70.

Technical level

Western Digital stock fell 3.5% on Thursday and closed at $46.08 with a market capitalization of $13.8 billion. The stock was trading 36.0% below its 52-week high of $72.00. Meanwhile, the stock was trading 68.2% above its 52-week low of $24.40.

Based on the closing price on Thursday, Western Digital stock was trading 8.8% above its 20-day moving average of $42.34. The stock is also trading 1.3% above its 50-day moving average of $45.48 and 16.1% below its 100-day moving average of $54.90. Western Digital’s 14-day relative strength index number is 55. The number suggests that the stock isn’t oversold or overbought.

On Thursday, the Dow Jones Industrial Average and the S&P 500 fell by 1.2% and 0.9%, respectively. Read US Stock Market Crash Reversal: Is a Double Bottom Next? to learn more.

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