Western Digital Corporation (WDC) is a leading American company focusing on Data Infrastructure, Computer Disk Drive Manufacturing, and Data Storage. The San Jose-based company designs and markets technology products, including cloud storage services, data center systems, and storage devices.
I am bullish on Western Digital Corporation because its valuation multiples are attractive compared to the historical averages, and Wall Street is overall bullish on shares, giving it significant pricing upside. (See Analysts’ Top Stocks on TipRanks)
Strengths
Western Digital Corporation is one of the largest computer drives, SSDs, and flash memory device manufacturers. The company has delivered both hard drive and flash drive innovations this year. Moreover, combined with its broad market and improved operational efficiency, the company was able to advance strategic growth opportunities this year.
Recent Results
Western Digital Corporation reported revenue of $4.9 billion in the fourth quarter of Fiscal Year 2021, showing an improvement of 19% quarter-over-quarter and 15% year-over-year.
Meanwhile, the company’s earnings per share stood at $1.97, up 214% from the third quarter’s EPS of $0.63. The company also reported a gross profit margin of 31.8%, up 5.4 points quarter-over-quarter, and saw an operating income of $675, up 113% from the previous quarter.
The company’s Client Devices segment remained very strong across almost every product category. Notebook and desktop HDDs also saw a better-than-expected demand, attributing to the positive momentum. In addition, the division saw robust demand for smart video, gaming, automotive, and industrial applications.
In the Data Center Devices and Solutions segment, the company saw a record shipment of over 104 exabytes in enterprise-class hard drives. The company’s energy-assisted 18-terabyte hard drive was the leading capacity point and consisted of almost half of the capacity-enterprise shipments.
The Client Solutions division also experienced higher than usual seasonal demand, leading to sequential growth for both flash-based and HDD solutions. In spite of the uneven reopening of the global economy, Western Digital Corporation was able to realize growth in both its revenue and gross margin due to its broadly diversified portfolio and numerous end markets.
Valuation Metrics
Western Digital’s stock looks attractively priced at the moment, as the EV/EBITDA ratio is 7.8x compared to its 5-year average of 10.1x. Furthermore, its price-to-forward earnings ratio is 6.5x compared to its 5-year average of 11.5x. (see WDC stock charts on TipRanks)
Wall Street’s Take
Turning to Wall Street, Western Digital has a Moderate Buy consensus rating, based on 12 Buys and five Holds assigned in the past three months. The average Western Digital price target of $73.07 implies 30.7% upside potential.
Summary and Conclusion
Western Digital operates in an innovative and in-demand industry that puts it in a position to enjoy long-term growth. That said, it also faces significant competition.
Overall, however, the company looks attractive given that the stock price has pulled back in recent months, and now trades at a clear discount to its 5-year valuation averages. Furthermore, Wall Street analysts are generally quite bullish on the stock and the price target implies significant upside potential over the next year.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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