WDC - Western Digital Seagate rise as Wells Fargo cuts estimates on 'very weak' demand

Western Digital ( NASDAQ: WDC ) and Seagate Technology ( NASDAQ: STX ) shares rose fractionally in premarket trading on Friday even as Wells Fargo lowered estimates on the storage companies, citing "very weak nearline hard-disk drive demand."

Analyst Aaron Rakers lowered revenue and earnings per share estimates for 2023 and 2024 on Western Digital ( WDC ) to $12.7B in revenue and earnings per shares of 35 cents and $15B and $3.47 per share, down from $14.1B and $2.37 per share and $16B and $4.84 per share, respectively.

He also cut his estimates on Seagate ( STX ) to $8.36B and $2.11 per share and $9.41B and $4.75 per share, down from $8.92B and $3.65 per share and $9.95B and $5.91 per share, respectively.

"This is being driven by a sharp cloud and enterprise OEM inventory digestion that we believe could persist through [the first-half of 2023]," Rakers wrote in a note to clients.

He added that finding a bottom in demand in the first-half of 2023 is contingent upon whether HDD capacity shipment estimates become reasonable.

Rakers also noted that debt covenant leverage ratio increases done by both companies last year could result in downside to EBITDA and present "increased risk of surpassing prior leverage ratio covenants."

Earlier this month, investment firm Benchmark upgraded Western Digital ( WDC ) on reports that the company has restarted merger talks with Japan's Kioxia .

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