WDC: Parsing Soggy Outlook For Disk Drives
By Tiernan Ray
blogs.barrons.com
Shares of Western Digital (WDC) are weak today despite after-market gains yesterday following better-than-expected fiscal Q2 results.
The stock is currently down $1.18, or 3.5%, at $32.77.
The big downer, however, came in management’s prediction that Q1 disk drive unit shipments will total 155 million, down from 168 million last quarter, and below some analysts’ expectations. Western management said that demand might be as much as 160 million units, but that its forecast allowed for some flushing out of inventory of drives already in the channel.
With Seagate (STX) earnings coming up this evening, parsing the meaning of the forecast is of special interest to the Street.
Richard Kugele, Needham & Co.: Reiterates a Strong Buy rating, while raising his price target to $41 from $36. With Intel (INTC) forecasting a low-single-digit decline in PC volumes in the current quarter, WDC’s forecast seems “particularly conservative,” writes Kugele. He thinks it’s a head fake by Western to “lower the risk profile for the June quarter.” Kugele raised his revenue estimate for this year ever so slightly to $9.43 billion, and raised his year EPS estimate to $3.07 from $2.93.
Katherine Huberty, Morgan Stanley: Reiterates an Equal Weight rating while maintaining a $35 price target. She’s taking it at face value that WDC is right and that there’s excess hard drive inventory out there. But with the company’s improvement in gross profit last quarter, and the promise of margins holding up, she raised her EPS estimate for this year $3.22 from a prior $2.52. The stock is worth 11 times forward earnings, she writes.
Shebly Seyrafi, Capstone Investments: Reiterates a Hold rating, while raising his price target from $30 to $34. The conservative forecast for the quarter’s industry output may be “wishful thinking” in Seyrafi’s view, as Seagate is an aggressive competitor. Even if bulls argue Western is being conservative, he’s worried the company’s only choice is to lose share or to lower prices sharply. Seyrafi raised his EPS estimate this year to $3.30 from $2.56.
Robert Cihra, Caris & Co.: Reiterates an Above Average rating and a $40 price target. He, too, thinks Western is trying to goad competitors into being rational: “WDC is taking a conservative stance and we believe SIGNALING to its competitors that one more qtr of under-shipping end PCs could be the smartest route to furthering the HDD market’s burgeoning recovery.” If true, that strategy could pay dividends when the second half of the year comes around, if PC builds increase after drive makers have been cutting back on production, giving the drive makers the upper hand. Cihra raised his 2011 EPS estimate to $3.14 from $2.73. |
