Western Digital drops after analyst says competitive pressures are not fully priced in yet

Key Points
  • Evercore ISI analyst C.J. Muse downgrades Western Digital to underperform from an in-line rating.
  • "The current competitive positioning for WDC is not ideal," Muse says, adding the company's annual dividend could be at risk.
Steve Milligan, chief executive officer of Western Digital Corp.
Kiyoshi Ota | Bloomberg | Getty Images

Shares of data storage company Western Digital fell nearly 5 percent on Monday after an analyst at Evercore ISI said the market has not fully price the competitive hurdles the company faces.

"The current competitive positioning for WDC is not ideal as we estimate WDC's enterprise SSD (solid state drivers) share has roughly halved in the last few years to ~12%," analyst C.J. Muse wrote in a note Monday. "Moving forward, strong positioning in NVMe will be critical and here we fear WDC will continue to lag."

Muse downgraded Western Digital to underperform from in line and trimmed his price target on the stock to $30 per share from $35. That represents a potential 25 percent downside from Friday's close of $40.03.

He also slashed his earnings per share forecast for calendar 2019 to $2.92 from $4, citing lower average sales prices for Western Digital's memory chips. Western Digital also makes disk drives.

Western Digital has had a rough three months, falling more than 26 percent in that time period. The stock has been able to regain some ground in January, rising more than 8 percent this month.

Muse also said the company's $2 per share annual dividend could be at risk. While ~98% of the outstanding debt does not come due until 2023, we are hard pressed to see the company's current dividend as sustainable in the current market. And until investors fully appreciate this reality, we continue to see further downside risk for shares," he said.

—CNBC's Michael Bloom contributed to this report.

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