Western Digital's Q4: Where It Impressed, Where It Disappointed

Western Digital Corp (NASDAQ: WDC)'s fiscal fourth-quarter earnings report contained a mixture of good and bad. While investors are focusing on the bad based on the stock's heavy selloff on Friday, BMO Capital Markets' Tim Long maintains an Outperform rating on Western Digital's stock with an unchanged $120 price target.

Western Digital's earnings report not only exceeded the Street's expectations but also came in higher than what the company pre-announced, Long noted in a research report. Other encouraging aspects of the report include signs that the SanDisk acquisition is still paying off as flew grew 46 percent year-over-year and helped offset weaker HDD sales. In fact, SanDisk now accounts for 49 percent of total sales and was fueled by a supply and demand imbalance.

On the other hand, Western Digital's guidance was mixed as its June quarter revenue was guided to $5.1 billion, which is short of the Street's $5.2 billion estimate but ahead of Long's $5.0 billion estimate. Also, the company's implied operating expenditure level was higher than expected and gross margin guidance of 41 percent did come in higher than expected and was attributed to favorable pricing and product mix.

Looking forward, Long believes that the company's 2017 earnings per share guidance of $12.00 is "achievable" and his 2018 EPS estimate was boosted from $12.45 to $12.47. The analyst also introduced a new 2019 EPS estimate of $13.46.

At time of publication, shares were down 6.9 percent at $85.56.

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