Western Digital (WDC) Q3 Earnings: A Beat in the Cards?

We expect Western Digital CorpWDC to beat expectations when it reports third-quarter 2017 results on Apr 27.

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 ESP : Western Digital's Earnings ESP is +2.16%. This is because the company's Most Accurate estimate is $1.89 while the Zacks Consensus Estimate is pegged lower at $1.85. A favorable ESP serves as a meaningful and leading indicator of a likely positive surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : Western Digital currently sports a Zacks Rank #1 (Strong Buy). Note that stocks with a Zacks Rank #1, 2 (Buy) or 3 (Hold) has a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Western Digital's Zacks Rank #1 and +2.16% ESP makes us reasonably optimistic of an earnings beat. You can see the complete list of today's Zacks #1 Rank stocks here.

Western Digital Corporation Price and EPS Surprise

Western Digital Corporation Price and EPS Surprise | Western Digital Corporation Quote

What is Driving Better-than-Expected Earnings?

We note that Western Digital has mixed record of earnings surprises in the trailing four quarters, with an average surprise of 9.73%. Moreover, the stock has outperformed the broader Zacks Computer Storage Devices industry on a year-to-date basis. While the industry gained 17.2%, the stock returned 26.3%.

We remain encouraged by the company's launch of a string of storage devices under the mobile and cloud segment. However, continued investments in product innovation could result in flattish margins in the near term.

Further, Western Digital's entry into the wireless devices market comes at a time when storage services related to smartphones and tablets are witnessing large-scale adoption. These factors are anticipated to spur growth, going forward.

Moreover, the SanDisk acquisition not only expands Western Digital's offerings in the SSD segment but also provide a competitive edge against players such as Seagate STX .

Moreover, we believe that improving PC shipment - per latest data from Gartner and IDC - bodes well for Western Digital. Notably, the company derives bulk of revenues from the sale of hard-disk drives (HDDs), which are used mainly by PC manufacturers. (Read More: Strong PC Shipments Witnessed in Q1: Gartner, IDC )

Going forward, the shift toward non-PC applications, secular growth of digital data and growing exposure to the small and medium business space are the other positives. Additionally, higher demand for storage is anticipated to lead to a positive earnings surprise in the to-be-reported quarter.

Other Stocks to Consider

Here are some companies you may consider as our proven model shows they too have the right combination of elements to post an earnings beat this quarter:

Square SQ , flaunts a Zacks Rank #1 and has an Earnings ESP of +12.50%.

Teradyne TER , with an Earnings ESP of +11.11%, boasts a Zacks Rank #1.

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Western Digital Corporation (WDC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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