Western Digital And Seagate: Same Business, Different Directions

The 2017 chasm between data storage competitors Seagate Technology PLC STX and Western Digital Corp WDC opened even wider this week following a disappointing earnings report by Seagate.

Seagate shares plummeted 16.5 percent on Tuesday after the company reported declining revenue in the most recent quarter. Western Digital bulls are hoping the divergence in share price between the two companies continues when it reports its own quarterly earnings report on Thursday after the market close.

For years, the two storage giants’ stocks traded with a very high correlation. However, in 2017, the story has been all about Western Digital. The company’s shares are up 36.3 percent year-to-date, while Seagate’s stock has dropped 14.8 percent on the year.

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Western Digital shares initially sold off this week on Seagate’s tough quarter, but the stock quickly found buyers and finished Tuesday’s session down less than 1 percent on the day.

The previous correlation between the two stocks and the recent divergence that began following Seagate’s disappointing fiscal third quarter earnings report in April can be seen in the chart below.

If Western Digital reports another solid quarter this week, traders should consider a pair trade by going long Western Digital and short Seagate to attempt to capitalize over Seagate’s lagging performance. That particular pair trade would have netted traders a 28 percent gain on Seagate and a 12.8 percent gain on Western Digital since the beginning of April.

Western Digital has delivered four consecutive earnings and revenue beats heading into Thursday’s report, according to Estimize.

Joel Elconin contributed to this report.