Western Digital Corporation

WDC Details

Western Digital Corporation (NASDAQ: WDC) is a primary developer, manufacturer, and provider of data storage devices (flash-based products and hard disc drives) and solutions that satisfy the changing needs of information technology and the infrastructure that allows data to increase. The company's key brands are western Digital, the Western Digital logo, G-Technology, SanDisk, and WD. As of January 10, 2022, the company's market capitalization stood at USD 20.51 billion. 

Latest News:

• Closing of Debt Offering: WDC announced the conclusion of its USD 500 million underwritten public offering of 2.850% senior unsecured notes due 2029 and USD 500 million underwritten public offering of 3.100% senior unsecured notes due 2032 on December 10, 2021. After subtracting underwriting discounts and fees and other expected offering expenses, the net proceeds of the offering were around USD 988 million.
  

Q1FY22 Results:

• Improvement in Revenue: Due to growth in sales across all divisions, the firm recorded a 28.79% increase in revenues to USD 5.05 billion in Q1FY22 (ended October 01, 2021) compared to USD 3.92 billion in Q1FY21 (ended October 02, 2020).
• Enhancement in Net Income: WDC's net income increased to USD 610 million in Q1FY22, compared to a loss of USD 60 million in Q1FY21.
• Leveraged Balance Sheet: The company's cash and cash equivalents were USD 3.29 billion as of October 01, 2021, with total debt of USD 8.52 billion.

Key Risks:

• Customer Concentration Risk: The top ten clients contributed 39%, 42%, and 45% of the company's net revenues in FY21, FY20, and FY19, respectively. Such a heavy reliance on a few critical clients for revenue could be detrimental to the company's financial and operational health in the long run.
• Supplier Concentration Risk: Third-party vendors provide WDC's controller wafers, with Flash Ventures providing practically all of its flash memory wafers. As a result, failure to obtain silicon wafers from any of these vendors could harm the company's operations and cash flows.

Outlook:

• Q2FY22 Estimates: As of October 28, 2021, WDC expect its Q2FY22 GAAP revenues to be around USD 4.70-4.90 billion, with the gross margin to be around 31-33%. It further anticipates Q2FY22 GAAP operating expenses to be in the range of USD 870-890 million.

Valuation Methodology: EV/EBITDA per share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

WDC Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

WDC's share price has surged 16.68% in the past three month and is currently trading in the mid-band of its 52-week range of USD 48.62 to USD 78.19. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 62.12. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 60.03.

Considering the uptick in the stock price, current valuation, and technical indicators, we believe the decent business fundamentals are adequately reflected at current trading levels. Hence, we recommend a "Sell" rating on the stock at the closing price of USD 65.54, down 0.44%, as of January 10, 2022.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.