The combination of "free cash flow tracking to ~$2.35 per share" in 2019, combined with Western Digital's $11 billion in gross debt, poses a "clear risk to the annual dividend of $2 per share," wrote Evercore ISI analyst C. J. Muse in a report released Monday morning.
Western Digital's stock price fell more than 4.9% Monday to close at $38.06. It closed Friday at $40.03, up 0.55%.
Evercore cut its rating on Western Digital to "underperform," with its price target down to $30.
The report also warns of a "sizable reset to earnings" ahead for Western Digital, with Evercore reducing its earnings estimates on the data storage company to $2.92 per share from $4 previously.
"We are hard pressed to see the company's current dividend as sustainable in the current market. And until investors fully appreciate this reality, we continue to see further downside risk for shares," Muse wrote.
Western Digital will face a slowdown in demand for HHD, hard disk drive, revenue as well as "worse than modeled" average sell prices on NAND flash products. Western Digital's share of the enterprise solid-state drive SSD storage market has declined by half over the past few years to 12% due to "technology roadmap delays" vs. "peers like Samsung," according to Evercore.
Samsung has doubled its enterprise SSD market share during the same period to 40%, Evercore noted.