| | | I am not a fan of Trefis and their gimmicky graphs that are virtually useless. However, I give them a pass when they tell me what I want to hear. :-P
That said, I think their predictions are based too much on comparisons to the 2008 recovery. I also think these are two COMPLETELY different situations and WDC should be able to recover extremely well based solely on the market environment for their products in 2020 regardless of what happened in 2008. If anything, WDC could have a much quicker recovery depending on the time it takes for us to get past the COVID-19 crisis.
More Than A Full Recovery Possible For Western Digitals Stock Post COVID-19 Crisis?
1:02 AM ET 3/27/20 | TREFIS
Comparing the trend in Western Digital's (NASDAQ: WDC) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock could potentially recover to pre-crisis levels and possibly rise further, once fears surrounding the coronavirus outbreak subside. Our conclusion is based on our detailed comparison of WDC's performance vs the S&P 500 in our interactive dashboard analysis, 2008 vs. 2020 Crisis Comparison: How Did Western Digital Stock Fare During Coronavirus Crisis Compared to S&P 500?
The World Health organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between January 31st and March 25th, WDC stock has lost 36% of its value (vs. about 26% decline in the S&P 500). A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia.
Western Digital's Stock Has Fallen Considerably Because The Situation On The Ground Has Changed
Memory hardware stocks generally move in tandem with the broader market trend and economic growth trends.With manufacturing activity slowing down, the demand for external and internal memory products from sectors such as mobile phones, consumer electronics, laptops and computers, etc, has decreased significantly.Lower prices and decreased shipments (due to fall in demand) is likely to put immense pressure on the company's revenues in 2020, leading to a sharp drop in the company's stock price.We believe WDC's Q3 and Q4'20 results will confirm this reality with a drop in revenues. (WDC's fiscal year ends in June)If signs of coronavirus containment aren't clear by the Q3 earnings timeframe, it's likely WDC's stock, along with the broader market, is going to see continued drop when results confirm palpable reality.But Western Digital's Stock fared worse during the 2008 downturn. We see WDC stock declined from levels of around $21 in October 2007 (the pre-crisis peak) to roughly $11 in March 2009 (as the markets bottomed out) - implying that the stock lost as much as 46% of its value from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by about 51%.
However, WDC recovered strongly post the 2008 crisis to about $36 in early 2010 - rising by 223% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.
Will Western Digital's Stock Recover Similarly From The Current Crisis?
Keeping in mind the fact that WDC stock has fallen by 36% this time around compared to the 46% decline during the 2008 recession, we believe it could potentially recover to pre-crisis levels at least, and could possibly rise further to around $80 levels once economic conditions begin to show signs of improving.This would mark a full recovery and further rise past the $66 level WDC stock was at before the coronavirus outbreak gained global momentum.That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak's impact on Western Digital's stock. The complete set of coronavirus impact and timing analyses is available here.
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