Is Western Digital's Huge Dividend At Risk?

Western Digital Corp. (NASDAQ: WDC) shares dropped on Monday following an analyst report that believes the market has not fully priced in the competitive hurdles that the firm faces. Not only this, but the analyst believes there could be a threat to Western Digital’s huge dividend.

Keep in mind that Western Digital is one of the 20 highest yielding stocks in the S&P 500, and any threat to its dividend shouldn’t be taken lightly.

Evercore ISI’s C.J. Muse downgraded Western Digital to an Underperform rating and cut the price target to $30 from $35, implying a downside of 25% from Friday’s closing price of $40.03.

Separately, Muse cut his earnings per share forecast for calendar 2019, down to $2.92 from $4.00. The reasoning behind this cut is lower average sales prices for Western Digital’s memory chips.

Evercore believes that the company’s $2 per share annual dividend could be at risk. About 98% of Western Digital’s outstanding debt does not come due until 2023, but Muse thinks it’s hard to see the company’s current dividend as sustainable in the current market. Until investors fully appreciate this reality, Muse continues to see further downside risk for shares.

Muse detailed in his report:

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%. Moving forward, strong positioning in NVMe will be critical and here we fear WDC will continue to lag.

Shares of Western Digital were last seen down over 7% at $37.01, with a consensus analyst price target of $64.20. The stock has a 52-week trading range of $33.83 to $106.96.