WDC - Western Digital slips as Deutsche Bank downgrades on 'uncertain' recovery path

Western Digital ( WDC ) shares slipped on Tuesday as Deutsche Bank downgraded the hard disk drive manufacturer and data storage company, noting it has an "uncertain" path towards recovery.

Analyst Sidney Ho lowered his rating on Western Digital ( WDC ) shares to hold from buy and cut his price target to $40 from $56 as the analyst believes its first-quarter revenue and earnings are likely to come in "below the low end of guidance" and its outlook is likely to be "meaningfully below" Wall Street estimates.

"Demand has deteriorated throughout the current quarter with Micron ( MU ) and Seagate ( NASDAQ: STX ) already revised their outlook, but our recent industry checks suggest inventory adjustments and Flash ASP erosion will likely continue at least for the next two quarters, and we note that demand is seasonally weak in [the first-half of 2023]," Ho wrote in a note to clients.

Late last month, Seagate ( STX ) cut its fiscal first-quarter revenue outlook due to several broad economic issues such as corrections in inventories and supply chain disruptions.

Earlier in August, Western Digital ( WDC ) also provided a weak outlook for the upcoming quarter.

Western Digital ( WDC ) shares fell nearly 2% to $35.90 in premarket trading, while competitor Seagate ( STX ) was off 1.5%.

In addition, Ho noted that it's likely that Western Digital ( WDC ) goes back to operating margins of around 4% and earnings per share of just 17 cents, not seen since the second-quarter of 2019. It's also possible that free cash flow is now likely to be negative in fiscal 2023.

As for the stock, it's not likely to get much lower, given it's trading at 1 times enterprise value-to-sales, but Ho added that the firm struggles to "see any meaningful upside in the next 6-9 months as oversupply in the flash memory market persists and macro concerns intensify."

Investment firm Citi recently gave a sell rating to Western Digital ( WDC ), as volatility continues to rise and an increasingly hawkish Fed focused on inflation .

Analysts are largely cautious on Western Digital ( WDC ). It has a HOLD rating from Seeking Alpha authors , while Wall Street analysts rate it a BUY . Conversely, Seeking Alpha's quant system, which consistently beats the market, rates WDC a HOLD .

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