On Western Digital's Updated Guidance, B. Riley Still Prefers Marvell

Western Digital CorpWDCunscheduled press release after Monday's market close in which the company updated its fiscal fourth-quarter expectations and reiterated its calendar 2017 earnings per share outlook.

Western Digital said it still expects sales in the fourth quarter to be $4.80 billion, but gross margin is projected to be 100 basis points higher at 41.0 percent and earnings per share is now modeled to be $2.85, representing a boost of $0.25 per share.

'Mixed Update'

Analysts at B.Riley commented in a research report that at first glance, the company's revenue guidance is slightly lower than the $4.809 billion the Street is expecting but EPS is well ahead of the Street's estimate. The "somewhat mixed update" isn't good enough for the analysts to turn bullish on the stock and prefer owning Marvell Technology Group Ltd. MRVL instead even though Western Digital is Marvell's biggest customer at 21 percent of sales.

"We note broader PC-related data points in the past few months suggest strong enterprise and gaming demand," the analysts said. "That should translate into healthy Marvell Storage pull. We also believe Marvell remains well positioned to sustain near-line enterprise HDD (hard disk drive) share gain."

The strong demand should help Marvell achieve the firm's above-Street fiscal 2018 and 2019 earnings per share estimates of $1.14 and $1.32 and could move as high as $1.75 or $2.00 per share over the longer term.

Shares of Marvell remain Buy rated with an unchanged $23 price target, and the firm does not have a rating on Western Digital.

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