Surging Earnings Estimates Signal Upside for Western Digital (WDC) Stock

Western Digital (WDC) appears an attractive pick given a noticeable improvement in the company's earnings outlook. The stock has been a strong performer lately, and the momentum might continue with analysts still raising their earnings estimates for the company.

The rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this maker of hard drives for businesses and personal computers, should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- has this insight at its core.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

Consensus earnings estimates for the next quarter and full year have moved considerably higher for Western Digital, as there has been strong agreement among the covering analysts in raising estimates.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

The earnings estimate of $1.85 per share for the current quarter represents a change of +4.5% from the number reported a year ago.

Over the last 30 days, the Zacks Consensus Estimate for Western Digital has increased 8.28% because two estimates have moved higher compared to no negative revisions.

Current-Year Estimate Revisions

For the full year, the earnings estimate of $7.06 per share represents a change of +43.2% from the year-ago number.

In terms of estimate revisions, the trend for the current year also appears quite encouraging for Western Digital. Over the past month, three estimates have moved higher compared to no negative revisions, helping the consensus estimate increase 5.71%.

Favorable Zacks Rank

The promising estimate revisions have helped Western Digital earn a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Western Digital shares have added 26.1% over the past four weeks, suggesting that investors are betting on its impressive estimate revisions. So, you may consider adding it to your portfolio right away to benefit from its earnings growth prospects.

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This article originally published on Zacks Investment Research (zacks.com).

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