Why Western Digital Corp. Fell thirteen.five% in April — The Motley Fool

Why Western Digital Corp. Fell thirteen.five% in April — The Motley Fool

What: Shares of Western Digital (NASDAQ:WDC) fell thirteen.five% in April 2016, in accordance to facts from S&P Global Market place Intelligence. The challenging-drive giant mirrored the chart moves produced by Seagate Know-how (NASDAQ:STX), but with a substantially reduce amplitude. By the close of the thirty day period, Seagate’s plunge had stretched all the way to 36.eight%.

So what: When Seagate reduced its quarterly revenue and margin advice, Western Digital took a sympathy plunge to the tune of 7%. That was nowhere close to Seagate’s 22% agony, partly since the information was not Western Digital’s very own, and partly since the firm had some good information of its very own that could soften the blow. That day, Western Digital also shut the books on $five.two billion of financial debt notes, bringing the firm 1 step nearer to consummating its merger with SanDisk (Unidentified:SNDK.DL).

The SanDisk deal is a vital go that could maintain Western Digital applicable for decades further than the loss of life of challenging drives based on magnetic platters. Seagate has no equivalent play on the solid-condition drive industry, where facts is stored on flash-based memory chips. For this reason, information objects that take Western Digital nearer to that merger can terminate out negativity from the traditional challenging-drive segment.

When both firms reported earnings on April 28, Seagate fell significantly brief of Wall Street’s estimates although Western Digital came substantially nearer. On prime of that, SanDisk also reported outcomes the very same evening — and conquer expectations. So Seagate fell an additional 19% the next day, but Western Digital’s drop was a additional subdued 11%. Continue to unpleasant, but it could have been even worse.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

Now what: Seagate is swimming in dire straits these days, although Western Digital appears to have a feasible extensive-time period prepare. Closing that SanDisk deal is completely critical, but the closing roadblock fell on May well ten. After closing acceptance from Chinese regulators, the deal is now expected to shut on May well 12.

As the merger unfurled, Western Digital shares have fallen additional than 60% around the very last fifty two months. Get nowadays, and you may lock in a solid five.two% dividend yield. And Western Digital can back its payouts with just 56% of its trailing earnings or 31% of no cost dollars flows. Seagate’s dividend payments do not arrive with that kind of dollars-based ensure.

If I had to decide on a challenging drive play at this point, Western Digital seems like the healthier alternative — and the race is just not even shut.


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