WDC - Western Digital rises even as Benchmark cuts estimates over worries on NAND pricing

Western Digital ( WDC ) shares rose on Friday even as investment firm Benchmark cut estimates for fiscal 2023 on worries over a deterioration in business conditions, rising inventories and lower NAND pricing, following Micron's ( MU ) fourth-quarter report and outlook .

Analyst Mark Miller, who has a sell rating on Western Digital ( WDC ), cut his estimates for fiscal 2023 to be $1.70 per share in adjusted earnings on $14.4B in revenue, down from a prior outlook of $3.05 per share and $15.7B in sales. The analyst also cut estimates for the next two quarters.

"During yesterday’s earnings call, Micron indicated business conditions remain weak and guided well below expectations for [first-quarter] with expected sales down 36% [quarter-over-quarter] and non-GAAP margins declining 1,430 [basis points] sequentially resulting in an expected non-GAAP EPS range of $0.04 + 0.10  versus the consensus expectation of $0.64," Miller wrote in a note to clients, adding that pricing "was termed very aggressive." And with inventory days up 28% sequentially, it's likely to be a challenging road ahead.

Western Digital ( WDC ) shares rose 2.5% to $32.98 in premarket trading, while competitor Seagate Technology ( STX ) was flat.

In addition, Miller noted that Western Digital ( WDC ) has concerns over cash management, has it has $2.33B in cash and $7.34B in debt. With concerns that free cash flow could be negative in fiscal 2023, the situation may get dicey.

However, Western Digital ( WDC ) shares are trading below book value and Miller said value-oriented investors may look to them, but caution should be used "until we see signs of improvement in NAND pricing, greater visibility on the direction of the macro economy and the cash flow, and improvement or stabilization in earnings expectations."

Earlier this month, Mizuho downgraded both Micron Technology ( MU ) and Western Digital ( WDC ), citing recent checks that showed "steepening price declines" heading into the next quarter and the first half of next year .

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