Western Digital Corp WDC reported a solid beat for the fourth quarter on Thursday, with EPS coming in at $2.93 and $4.84 billion in sales compared to the Street’s estimated $2.81 EPS and $4.81 billion in sales.
The company also issued Q1 EPS guidance of $3.25–3.35 compared to the Street’s $3.19 estimate. However, investors seemed more concerned with sales guidance for Q1, which were just below estimates at $5.1 billion, bringing the stock down.
Despite investors negative reaction to the report, BTIG analyst Edward Parker felt increasingly bullish, reiterating a Buy rating and $120 price target.
‘Constructive Trends Continue’
The trends across Western Digital’s business lines will continue to drive record profitability, according to Parker.
The analyst expects NAND supply growth to be between 35–45 percent as 3D yields. The supply growth is improving, but headwinds will continue to face production.
That said, tightness in NAND will drive margins, which are already high at 41 percent overall.
Investors should watch out for a drag in the overall tech industry, which could limit top-line upside.
Related Link: How Western Digital Shares Could Rise 48% Over The Next Year
Investors Are ‘Overly Pessimistic’
On the earnings call, management said that it expects gross margins to remain at 41 percent, but Parker “see[s] room for outperformance” through favorable pricing and integration synergies.
SanDisk, notably a strong growth driver this year, has still not realized its full synergy potential.
“The stock continues to discount $12.00 [EPS for calendar 2017] as a peak number, which we believe is an overly pessimistic stance,” said Parker. “We resolutely remain in the ‘this time it’s different camp.”
Maxim analyst Nehal Chokshi was slightly more bearish, but ultimately also reiterated a Buy rating and $108 price target.
At time of publication, shares of Western Digital were down 6.72 percent at $85.72.
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