Shares of Western Digital (NASDAQ:WDC) held the $40 level since April 2020. Markets proved right after it failed to break out at that time. in its Q1/2021 earnings report, the company posted revenue growth of 18.5%. It earned 49 cents a share.
WDC posted good results but its guidance is a disappointment. It expects revenue of $3.7 - $3.9 billion. The gross margin will be only 21% - 23%. Management said demand challenges across both memory and storage is in stark contrast to the first half 2020 strength. Low profitability is another concern. Weaker demand, customer sensitivity to pricing, and a shift from hard disk to solid-state drives are hurting the company’s prospects.
Investors may accumulate Micron (NASDAQ:MU) in light of the stronger SSD sales. Similarly, adding Seagate (NASDAQ:STX) may pay off because this HDD supplier typically outperforms Western Digital.
Headwinds
WDC has $9.7 billion in debt with applicate rates averaging 2.918%. It will have no issue managing the debt load. Also, it has two important objectives ahead. First, it will ramp up SSD products and their capacity enterprise drive. Second, it will position itself to grow market share in the years ahead as data creation and storage demand increases.
Trading at below seven times forward earnings, WDC should add the stock to the watch list as it potentially re-tests yearly lows.
