The latest analyst coverage could presage a bad day for Western Digital Corporation (NASDAQ:WDC), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.
Following the latest downgrade, the current consensus, from the 23 analysts covering Western Digital, is for revenues of US$16b in 2023, which would reflect a not inconsiderable 13% reduction in Western Digital's sales over the past 12 months. Statutory earnings per share are supposed to tumble 54% to US$2.20 in the same period. Before this latest update, the analysts had been forecasting revenues of US$20b and earnings per share (EPS) of US$6.80 in 2023. Indeed, we can see that the analysts are a lot more bearish about Western Digital's prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.
Analysts made no major changes to their price target of US$65.74, suggesting the downgrades are not expected to have a long-term impact on Western Digital's valuation. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Western Digital, with the most bullish analyst valuing it at US$90.00 and the most bearish at US$50.00 per share. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. One more thing stood out to us about these estimates, and it's the idea that Western Digital's decline is expected to accelerate, with revenues forecast to fall at an annualised rate of 13% to the end of 2023. This tops off a historical decline of 2.6% a year over the past five years. Compare this against analyst estimates for companies in the broader industry, which suggest that revenues (in aggregate) are expected to grow 4.6% annually. So while a broad number of companies are forecast to grow, unfortunately Western Digital is expected to see its sales affected worse than other companies in the industry.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Western Digital after the downgrade.
There might be good reason for analyst bearishness towards Western Digital, like dilutive stock issuance over the past year. Learn more, and discover the 1 other warning sign we've identified, for free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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