Earnings estimates for the major hard disk drive manufacturer Western Digital Corp. (WDC) have moved up sharply, attributable to encouraging third quarter results and strong business fundamentals.
The company reported third quarter 2010 EPS of $1.71, which exceeded the Zacks Consensus Estimate of $1.55. EPS was up $1.49 from the year-ago quarter, while it was down 14 cents sequentially.
Revenue for the third quarter was $2.6 billion, up 64.5% from the prior year and almost flat sequentially. The strength may be attributed to strong demand from existing customers during the quarter ended March 31. This has, in turn, enabled the company to generate unit shipment growth in the recently concluded quarter.
Average hard drive selling prices came in at $51.0 per unit, increasing $1.0 from the year-ago period and declining $1.0 from the second quarter of 2010. Strength in emerging markets, coupled with growth in the commercial segment translated into better-than-expected growth in the desktop segment. This apart, the shipment of mobile drives increased on a year over year basis.
We have discussed the quarterly results at length here: Western Digital Surpasses
Agreement
Historically, the company has witnessed seasonal softness in the June quarter, when compared to March but as market indicators and customer inputs continued to gain momentum, the company believes that the demand for hard drives will be strong throughout the current year and beyond.
Accordingly, the company expects fourth quarter of 2010 revenue in the range of $2.475 billion to $2.575 billion, total R&D and SG&A expense of approximately $230 million and earnings per share in the range of $1.40 to $1.50.
Over the last 30 days, 16 of 22 analysts covering the stock have raised their estimates for the fourth quarter, while no analyst moved in the opposite direction. Moreover, analysts also revised their estimates for fiscal 2010, with 19 analysts raising estimates and none making downward revisions.
Magnitude
Due to these revisions, the fourth quarter Zacks Consensus EPS has moved up to $1.47, 10 cents above the EPS estimated 30 days ago. For the fiscal year 2010, the Zacks Consensus EPS has moved up to $6.27, up a staggering 25 cents estimated 30 days ago.
The company is well placed, has the requisite resources and infrastructure to serve the market needs and derive benefit from existing customer and supplier relationships, existing product portfolio, operational efficiency, technical know-how and strong financial resources.
WDC Stays at Neutral
The company is taking measures to increase its business in Asia and enhance its product portfolio. WDC has high cash generation ability. However, while we are encouraged by its recent performance, we are a bit concerned about the intense competition the company faces in the hard disk manufacturing space and within its distribution channel. We maintain a Neutral rating on WDC shares.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/.
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