Thursday, August 6, 2020

Western Digital’s Stock Just Got Even Cheaper!

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News shaping
the markets today

     

What’s happening: Shares of Western Digital plunged in after-hours trading on Wednesday despite the computer hard-disk drive manufacturer and data storage company exceeding earnings estimates for its fiscal fourth quarter.

What happened: The company benefited from a spike in demand for data center storage, driven by a sharp upturn in work- and learn-from-home trends due to the pandemic.

Despite its earnings beat against aggressive expectations, Western Digital expressed concerns around its strong momentum continuing into the next quarter. While the company has performing well, its stock has missed the tech rally since the lockdowns began. Even while peers gained, Western Digital’s shares are down almost 30% year to date.

How were the results: The San Jose, California-based company reported growth in sales and adjusted earnings for the fiscal fourth quarter.

  • Revenues climbed to $4.29 billion, from $3.63 billion in the same quarter last year, but missed the market expectations of $4.36 billion.
  • Net profit came in at $148 million, or 49 cents per share.
  • Adjusted earnings surged to $1.23 per share, from 17 cents per share in the year-ago quarter, surpassing the consensus view of $1.22 a share.

Why it matters: Robust cloud demand provided an overall boost to data center sales. Western Digital's data center storage segment delivered the best performance, with sales growing 32%.

The company’s client device revenues climbed 19%, while revenues from client solutions declined 9%. Consumers purchased client SSDs amid rising work-from-home trends, although sales of notebook drives declined in the quarter.

Western Digital's revenue miss was by a small margin, which investors could have looked past. What investors were unable to digest was the weak outlook and the much larger miss in the quarterly forecast.

Management guided to sales between $3.7 billion and $3.9 billion for the fiscal first quarter, versus analyst projections of $4.36 billion. Adjusted earnings were projected between 45 and 65 cents per share, meaningfully lower than the consensus view of $1.35 per share.

How shares responded: Western Digital’s shares nosedived almost 12% to $39.25 in extended trading following the release of quarterly results.

What to watch: Given the significant growth in sales, investors had expected a positive tone from management about what the future holds. While investors are now less bullish about Western Digital’s prospects, the current share price is still considered as an attractive entry point, with the stock being down around 30% this year.

The Markets Today

     

US stocks will be in focus today, ahead of the initial jobless claims report scheduled for release during the day.

Context: US stocks closed higher on Wednesday, with the Nasdaq 100 marking its 31st record close in 2020! Strong earnings reports and upbeat service sector data lifted market optimism.

Details: Upbeat quarterly results from entertainment giant Walt Disney Company helped to boost the overall market sentiment. Disney’s shares climbed around 9% during the session.

Humana also reported strong second-quarter revenues and profits, beating expectations. The company’s shares gained more than 3% on Wednesday.

Meanwhile, the final reading of the ISM service sector PMI surged to 58.1 in July, exceeding expectations. The ADP report disappointed investors, however, showing an addition of only 167,000 private sector jobs in July, much lower than the expectations of a 1.88 million gain.

Signs of progress on the new fiscal relief package front also lifted investor sentiment, with reports suggesting that the agreement may be inked by the end of the week.

After rising 0.6% on Tuesday, the Dow Jones index gained 373.05 points to close at 27,201.52 on Wednesday. The S&P 500 rose 0.6% to settle at 3,327.77. Yesterday marked the fourth consecutive session of gains for both the Dow and S&P.

The Nasdaq 100 added 0.5% to settle at 10,998.40 on Wednesday, after hitting an intraday record high of 11,002.11.

What to watch: Investors await the Challenger job cuts report and data on initial jobless claims. The number of people filing for jobless benefits, which increased 1.43 million during the week ending July 25, is expected to ease slightly to 1.42 million.

Markets will also keep a close eye on progress at the Congress regarding the new covid-19 relief package. Investors will continue to monitor covid-19 numbers, with the total number of cases exceeding 4.8 million in the US.

Other Markets: European indices were trading mostly lower at 8:30am GMT, with the FTSE 100 and French 40 down by 0.9% and 0.4%, respectively. The Dax 30 index had traded slightly higher by 0.1%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Mexico's auto exports, car output and gross fixed investment, Russia’s total vehicle sales and annual inflation rate, Brazil’s unemployment rate, car production and new vehicle registrations as well as the US EIA’s natural gas stocks.