Wedbush: Hard drive supply falls short of demand; Seagate (STX.US) and Western Digital Corporation (WDC.US) earnings expected to deliver "surprises"

Wedbush said in a report on Wednesday that among hard disk drive (HDD) manufacturers, Seagate (STX.US) and Western Digital Corporation (WDC.US) are most likely to deliver quarterly results and outlooks that beat market expectations. Wedbush reiterated its "Outperform" ratings on Seagate and Western Digital Corporation, with price targets of $1,000 and $650, respectively. Wedbush analyst Matt Bryson said in the report: "With demand far exceeding capacity and no obvious supply chain disruptions, we believe HDD manufacturers are almost certain to exceed their performance targets again, and they should have been able to surpass these targets, especially given that there is usually an opportunity during the quarter to adjust some supply prices or increase shipment volumes. In summary, based on preliminary forecasts, we expect both Western Digital Corporation and Seagate's results to potentially exceed market consensus." Seagate gross margin may be underestimated Bryson said that thanks to margin improvement, Seagate is expected to once again exceed its own guidance and market consensus. The company guided revenue of $4.1 billion $100 million and non-GAAP earnings per share of $7.30 $0.20; market consensus is revenue of $4.13 billion and earnings per share of $7.39. Wedbush estimates Seagate's gross margin at 58.3%, above the market consensus of 57.4%. Bryson noted that given Seagate has repeatedly underestimated the extent of gross margin expansion in recent periods, with the underestimation exceeding 100 basis points, Wedbush's current margin assumption may be conservative. Wedbush also mentioned that Seagate's long-term agreements (LTAs) have the shortest duration among peers. This means that when a shortage emerges in storage supply, Seagate will be the earliest to be able to adjust prices accordingly. Western Digital Corporation: Conservative guidance and non-LTA repricing provide upside For Western Digital Corporation, Wedbush expects the company is likewise likely to exceed guidance and market consensus. The company guided revenue of $4.1 billion $100 million, gross margin of 55% to 56%, and non-GAAP earnings per share of $3.85 to $4.15; market expectations are revenue of $4.13 billion and earnings per share of $4.07. Bryson said part of the reason for Western Digital Corporation's beat is that the company has historically guided conservatively. On the other hand, Western Digital Corporation had been slower than peers in repricing non-long-term agreement transactions, and the company has adjusted its strategy in the third and fourth quarters of the calendar year to narrow this gap. Western Digital Corporation will report first-quarter fiscal 2027 results on Thursday, October 22. Seagate will report its latest results on Tuesday, October 27.