Will Q3 Results Lift Western Digital Stock?
Western Digital (NASDAQ: WDC is set to report its fiscal third-quarter earnings on Wednesday, April 30, 2025. Analysts project earnings of $1.11 per share on $2.48 billion in revenue, marking a significant year-over-year decline of 65% in earnings and 28% in revenue, compared to $3.13 per share and $3.46 billion, respectively, reported in the same quarter last year. Notably, this will be the company’s first earnings release following the successful completion of its planned separation from SanDisk, a strategic move that enables Western Digital to focus exclusively on its core hard disk drive (HDD) business.
Historically, Western Digital’s stock has declined following earnings announcements 58% of the time, with a median one-day loss of 3.5% and a maximum post-earnings decline of 12%. Western Digital currently holds a market capitalization of $14 billion. Over the past twelve months, the company generated $16 billion in revenue, with $2.5 billion in operating profit and $1.3 billion in net income, indicating continued operational profitability.
For event-driven traders, historical performance trends and the discrepancy between actual earnings results and market expectations can offer valuable insights ahead of the upcoming announcement. Traders may adopt one of two primary strategies: positioning in advance of the earnings release by leveraging historical probabilities and consensus forecasts, or responding after the announcement by analyzing how short- and medium-term returns typically correlate with the reported results. That said, if you seek upside with lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative, having outperformed the S&P 500 and generated returns exceeding 91% since its inception. See earnings reaction history of all stocks.
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Western Digital’s Historical Odds Of Positive Post-Earnings Return
Some observations on one-day (1D) post-earnings returns:
- There are 19 earnings data points recorded over the last five years, with 8 positive and 11 negative one-day (1D) returns observed. In summary, positive 1D returns were seen about 42% of the time.
- Notably, this percentage increases to 45% if we consider data for the last 3 years instead of 5.
- Median of the 8 positive returns = 4.0%, and median of the 11 negative returns = -3.5%
Additional data for observed 5-Day (5D), and 21-Day (21D) returns post earnings are summarized along with the statistics in the table below.
Correlation Between 1D, 5D, and 21D Historical Returns
A relatively less risky strategy (though not useful if the correlation is low) is to understand the correlation between short-term and medium-term returns post earnings, find a pair that has the highest correlation, and execute the appropriate trade. For example, if 1D and 5D show the highest correlation, a trader can position themselves “long” for the next 5 days if 1D post-earnings return is positive. Here is some correlation data based on 5-year and 3-year (more recent) history. Note that the correlation 1D_5D refers to the correlation between 1D post-earnings returns and subsequent 5D returns.
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