Morning Commentary: Western Digital in focus, contracts after earnings miss

By Abigail W. Adams

Portland, Me., Oct. 26 – The convertible secondary space opened Friday with light trading volume as equity markets stood poised to close out a volatile week with an ugly session.

Western Digital Corp.’s 1.5% convertible notes due 2024 were the focus of trading activity early in Friday’s session with the notes down on both an outright and dollar-neutral basis as stock tanked after its first-quarter earnings report.

The 1.5% notes dropped to their lowest outright price since hitting the market in January. They were down about 3.5 points outright to trade at 86.5 with stock down more than 20%.

The notes were contracted by 1 point dollar-neutral, a market source said.

Western Digital stock was down to $42.11, a decrease of 22% shortly before 11 a.m. ET.

The stock move came after Western Digital reported first-quarter earnings.

While the reported earnings per share of $3.04 were in line with analyst expectations, the data storage company missed on revenue.

Western Digital reported $5.03 billion in revenue in the first quarter versus analyst expectations of revenue of $5.14 billion.

Like many other companies in the tech sector, Western Digital is anticipating slower growth.

With Amazon and Alphabet missing earnings, equity markets were poised for another brutal session with the Dow Jones industrial average down 473 points early in the session and the Nasdaq down 242 points.

Chipmakers’ equities have “gotten destroyed” over the past few sessions, the source said. While firming on Thursday, tech and software stocks were again getting hammered on Friday.

Better credit tech names stand to benefit from the stock moves on a hedged basis. However, the gains will only last so long, a market source said.

“It’s good for hedges until the credit blows out,” a market source said.

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