Western Digital (WDC) Trims Q1 Sales Outlook on Rebalancing, Demand; Analysts Still Like Long-Term Story

September 14, 2012 7:46 AM EDT
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Western Digital (Nasdaq: WDC) shares are lower Friday morning following a mixed batch of information from the memory maker during its Analyst Day.

Citing muted demand and inventory rebalancing, Western Digital cut its outlook for fiscal first-quarter 2013 sales Thursday night. From previous expectations calling for sales of $4.2 billion to $4.3 billion, the Company now sees sales at $3.9 billion to $4.0 billion. Currently, the Street is at $4.33 billion.

Amid the cut, Western Digital reaffirmed non-GAAP earnings estimates for fiscal 2013.

Despite the lower outlook, Western Digital also boosted its stock repurchase authorization to $1.5 billion, while initiating a quarterly dividend at 25 cents per share.

Deutsche Bank noted three positives from the event: higher gross margin targets, the new dividend, and the $1.5 billion buyback. Amid the near-term cut, Deutsche still likes Western Digital as a long-term story. Valuation at 4x expected fiscal 2014 earnings also keeps Western Digital a value play, the firm noted.

Deutsche is keeping its FY13 EPS model at $9.15 and boosting FY14 EPS expectations from $9 up to $10.35. The firm also revised its price target to $60, from its prior reading of $54.

BMO Capital Markets noted Western Digitals first-quarter TAM was lowered from 157 million down to 140 million, with BMO itself recently lowering its outlook to 150 million. The firm said, "We believe the combination of high finished PC units and weak end-market demand is driving the lowered TAM outlook." BMO is also expecting ASP decline of 7 percent sequentially, believing "drive vendors have been more disciplined with pricing, but we will closely monitor pricing over the next two weeks."

Ahead of the bell Friday, Western Digital shares are down about 1.4 percent.

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