Post-Earnings Selloff May Provide Western Digital Investors With A Good Entry Point

Argus believes the "selloff following management's cautious 1Q17 guidance provides investors with a favorable entry point."

The expense outlook overshadowed the company's strong fourth-quarter results, which include 10 percent rise in revenue to $3.50 billion (consensus: $3.46 billion). The company's non-GAAP EPS fell nearly 50 percent to $0.80, but came in above the consensus forecast of $0.70.

"We believe that the selloff is overdone and expect WDC to begin reducing operating costs on or ahead of plan as it integrates the SanDisk acquisition," analyst Jim Kelleher wrote in a note.

Related Link: Western Digital Beats EPS, Revenue Estimates

For the first quarter, Western Digital expects revenue of $4.4 billion–$4.5 billion, above the pre-reporting consensus of about $4.3 billion. However, the company guided its first quarter non-GAAP EPS of $0.80–$0.90, below the Street view of $0.95.

Further, it estimates expenses to increase to $875 million in the first quarter, "as incentive compensation related to the combination is paid out."

Kelleher maintains his Buy rating and $60 price target on the stock as he believes the SanDisk purchase "provides a clear path forward for WDC as an integrated supplier of memory solutions."

The analyst also noted the company's dividend yield of 4.2 percent as part of his bullish thesis.

"WDC shares appear to offer value for patient investors apprised of the risks in the fast-changing memory industry," Kelleher added.

At time of writing, shares of Western Digital were down 1.40 percent at $46.85.

Full ratings data available on Benzinga Pro.