We expect storage device manufacturer Western Digital Corp. (WDC) to beat expectations when it reports second quarter 2013 results on January 23rd.
Why a Likely Positive Surprise?
Our proven model shows that Western Digital is likely to beat earnings because it has the right combination of two key ingredients.
Zacks Earnings ESP (Read: Zacks Earnings ESP: A Better Method): The Expected Surprise Prediction or ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +2.75%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings estimates. The sell-rated stocks (Zacks Rank #4 and #5) should never be considered going into an earnings announcement.
The combination of Western Digital’s Zacks Rank #3 (Buy) and 2.75% positive ESP makes us reasonably confident about looking for a positive earnings beat on January 23rd.
What is Driving the Better than Expected Earnings?
Sky-rocketing demand for high capacity storage due to increasing data exchanges and a more conducive pricing environment are positive for Western Digital.
On October 22, 2012, the company delivered first quarter earnings per share of $2.36, beating the Zacks Consensus Estimate by 2.2%. Revenues grew 49.8% from the year-ago quarter. However, Western Digital provided a cautious guidance due to continued macro weakness and a weak PC market.
The company is in constant war with rival Seagate Technology (STX). But Western Digital is confident that with new product offerings, further cost optimization, strategic allocation of capital and efficient execution, it can grow market share going forward.
We also believe that the company’s strategy to continuously return shareholder value through share buybacks and dividend payout will boost the earnings per share.
The positive trend is seen in the trailing four-quarter average surprise of 22.7%.
Other Stocks to Consider
Western Digital is not the only firm looking up this earnings season. We also see likely earnings beats coming from these 2 technology stocks:
Yahoo Inc. (YHOO), Earnings ESP of +14.82% and Zacks Rank #1 (Strong Buy).
Interdigital Inc. (IDCC), Earnings ESP of +0.18% and Zacks Rank #2 (Buy).
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