Should you buy or sell Western Digital shares as it guides FQ2 below estimates?

on Oct 29, 2021
  • Western Digital shares on Friday plunged by more than 8% after reporting its fiscal Q1 results.
  • The company announced its most recent quarterly results Thursday after markets closed, missing estimates.
  • Western Digital also provided FQ2 revenue and earnings below the consensus Street forecast.

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On Friday, the computing hard drive manufacturer Western Digital Corp (NASDAQ:WDC) shares declined by more than 8% after reporting its most recent quarterly results. The company announced its fiscal Q1 2022 revenue and earnings Thursday after markets closed, beating the consensus for analyst expectations. However, WDC issued FQ2 revenue and earnings guidance below Street forecasts.

The company posted FQ1 non-GAAP earnings per share of $2.49, beating the consensus for analyst expectations of $2.44. On the other hand, its GAAP earnings of $1.93 missed the expectation of $2.03, while revenue for the quarter increased by 30.8% from the same quarter a year ago to $5.1 billion, $40 million ahead of estimates.

Looking forward, Western Digital issued revenue guidance in the range of $4.7 billion to $4.9 billion, significantly below the Street forecast of $5.24 billion. In addition, its EPS guidance of $1.95-$2.25 was below the average analyst estimate of $2.63.

Western Digital looks undervalued

From an investment perspective, Western Digital shares trade at attractive valuation multiples of 21.80 P/E and 5.03 forward P/E. Therefore, the stock is a compelling option for value investors.

Moreover, analysts expect its EPS to grow by 416.70% this year before rising at an average annual rate of 47.80% over the next five years. Therefore, the stock could also gain the attention of growth investors.

Source – TradingView

Technically, Western Digital shares seem to be trading within a descending channel formation in the intraday chart. As a result, the stock has moved closer to the oversold conditions of the 14-day RSI.

Therefore, investors could target potential rebounds at about $57.02, or higher at $62.87, while $47.97 and $41.76 are crucial support zones.

Time to bet on a rebound?

In summary, although Western Digital issued underwhelming FQ2 guidance compared to analyst expectations, the difference seems to be overblown based on Friday’s plunge.

In addition, Western Digital shares trade at exciting valuation multiples whilst offering a compelling outlook. Therefore, it could be time to invest in WDC stock.


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