Western Digital (WDC) Stock Rises On Upbeat Q2 Guidance

Shares of Western Digital Corporation (NASDAQ:WDC) jumped 8.3% during yesterday’s trade after the world’s leading hard-disk drive (HDD) manufacturer raised its forthcoming quarter’s outlook. The renewal of cross-license agreement with Samsung Electronics (KS:005930) Co. Ltd. also boosted investors’ confidence in the stock.

Revised View for the Second Quarter

The company now anticipates second-quarter fiscal 2017 revenues to be approximately $4.75 billion. Earlier, Western Digital had projected revenues to remain flat sequentially at $4.7 billion. The revised revenue guidance is higher than the Zacks Consensus Estimate of $4.71 billion.

Similarly, non-GAAP gross margin forecast has been raised to 36% from its earlier anticipation of 35%. Non-GAAP tax rate is now projected to be approximately 13% compared with the previous guidance range of 14% to 16%.

However, Western Digital has kept its non-GAAP operating and net interest expenses guidance unchanged at $805 million and $205 million, respectively.

Considering the aforementioned changes in its second quarter outlook, the company raised its projected non-GAAP earnings per share range to $2.10 – $2.15 from the earlier guided range of $1.85 – $1.95. Currently, the Zacks Consensus Estimate is pegged at $1.45, which will definitely see an upward revision in the coming days.

According to the company, the upbeat top and bottom line guidance is a result of favourable product mix, continued strong acceptance of its products, solid sales execution and favourable market conditions. Apart from this, the company also renewed an 8-year cross-license patent agreement with Samsung yesterday, which the company believes will also positively impact its forthcoming quarterly results.

Renewed Agreement with Samsung

Concurrent with an update on its second-quarter outlook, the company announced a definitive royalty-bearing agreement with Samsung to renew the cross-license patent deal with a retrospective date of Aug 14, 2016, the day when the company’s previous agreement expired. Per Western Digital, “The agreement includes rights to each party's patents broadly covering multi-level cell flash memory and flash storage systems.”

Bottom Line

We believe that the company’s acquisition of SanDisk in May this year along with the recent agreement renewal with Samsung will continue to benefit its top and bottom line results. This is reflected in its last few quarterly results. Notably, since its completion of SanDisk’s acquisition, Western Digital has reported back-to-back quarters of better-than-expected results.

Notably, the stock has delivered three positive earnings surprises in the last four quarters with an average beat of 5.87%. Moreover, over the last 60 days, estimates have moved upward for the current quarter as well as fiscal 2017.

WESTERN DIGITAL Price, Consensus and EPS Surprise

WESTERN DIGITAL Price, Consensus and EPS Surprise | WESTERN DIGITAL Quote

Furthermore, in the last six months, Western Digital has yielded a return of 40.4%, outperforming the Zacks categorized Computer-Storage Device industry’s return of 36.8%. Also, the company hit a new 52-week high of $69.60 yesterday before settling at $69.15.

We believe there is still much momentum left in this Zacks Rank #1 (Strong Buy) stock, which is quite evident from its VGM Score of “B” and fiscal 2017 and 2018 earnings growth rate of 2.1% and 19.2%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other stocks worth considering in the Computer-Storage Device space are NetApp Inc. (NASDAQ:NTAP) , Quantum Corporation (NYSE:QTM) and Super Micro Computer Inc. (NASDAQ:SMCI) .

Sporting a Zacks Rank #1, estimates for NetApp moved up in the last 30 days. It surpassed the Zacks Consensus Estimate twice while matching the same once and missing it once in the trailing four quarters. It has an average positive earnings surprise of 14.02%.

Estimates for Super Micro Computer also moved up in the last 60 days. It surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive surprise of 24.10%. The stock carries a Zacks Rank #2 (Buy).

Quantum Corp. Carries a Zacks Rank #2. The stock has surpassed the Zacks Consensus Estimate twice while matching the same once and missing it once in the trailing four quarters. It has an average positive earnings surprise of 43.75% and has long-term EPS growth rate of 20% compared with the industry average of 15.5%.

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