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Western Digital (WDC - Free Report) develops, manufactures, and sells data storage devices and solutions worldwide. The company's hard drives are designed for the desktop PC market and the high-end hard drive market and, recently, for the emerging market for hard drives specially designed for audio-visual applications, such as new video recording devices. The company was founded in 1970, is based in Irvine, California and now has over 72,000 employees. The stock is the Bull of the Day after it recently became a Zacks Rank #1 (Strong Buy).
Western Digital has a market cap of $18 Billion with a Forward PE of 12. The stock sports Zacks Style Scores of “B” in Value and “C” in both Growth and Momentum. The company sits in an industry ranked 15 out of 265 (Top 6%) of the Zacks Industry Rank.
Last quarter’s earnings have put a charge into the stock. Since the report back in October analysts have been raising estimates and price targets. Moreover, the company has an analyst day this week, which have investors excited that the stock could head to $80.
Earnings
Western Digital reported Q1 earnings on October 26th, with EPS coming in at $1.18 versus the $1.05 expected. Revenue came in higher than expected as well, with the company reporting $4.71 billion versus the $4.48 expected. The company also guided Q2 EPS higher, now seeing $1.85-$1.95 versus the $1.28 expected.
CEO Stephen D. Milligan had some comments on the quarter and the recent SanDisk acquisition:
“We are pleased with our performance in the September quarter, the first full quarter as an integrated company following the SanDisk acquisition in May... Demand for both hard drive and flash-based products was strong across all customer categories, driven by cloud and mobile applications, as well as better-than-expected PC market trends. We are encouraged by the uniformly positive response to the new Western Digital platform from our broadened customer base... The Western Digital team is executing very well against our top business objectives, including the integrations of the legacy HGST, SanDisk and WD operations, and our transition to next-generation NAND technology. We are on track to achieve our synergy goals associated with these integrations and our transition to 3D NAND continues to progress as planned.”
The stock reacted very well to the quarter, surging over 15% in just five trading days. The stock did pull back, close to post earnings levels before taking off again, now sitting around the $63 level. Analysts and investors are getting excited about the company’s analyst day coming up on December 6th.
Analyst Day
There is a lot of excitement coming from analyst about the investor’s day coming this week. Below I outline some comments that have shorts covering and new investors getting long before the event.
Susquehanna: The firm believes Western Digital has moved past its takeover and will deliver a clearer image of its future plans and vision. They believe that datacenter solutions make for an opportunity of $25 billion and have price target of $88.
RBC- The firm outlined several key drivers that will be beneficial to the stock and attract investors. They see the investor day event as an incremental positive.
RBC’s Outline:
1) Ability to sustain low-single-digit growth driven by uptick in NAND portfolio, nearline HDD, and enterprise systems solutions; some of the growth will be offset by PC and mission-critical HDD headwinds.
2) Gross margins should inflect higher with high 30% upside potential driven by better mix (more NAND and nearline), cost takeout (HGTS and SNDK), and revenue leverage.
3) 3D NAND roadmap and ability to achieve cross-over points in H2:17 with 64-L ramps.
4) Strong FCF generation that will be earmarked for debt reduction but long-term enables an attractive capital allocation story.
Near-term, we see two positives:
1) WDC could update Dec-quarter guide that is likely better than Street models given revenue and margin tailwinds.
2) Update/resolution on Samsung IP could be a positive for the stock given this is out of consensus models for 2017 and beyond. Maintaining Outperform and $72 price target. Upcoming Analyst Day: Download on Expectations and Path to $10.00+ EPS.
Stifel- The latest to join the party, taking its price target to $80 from $75 and reiterating its Buy rating. The firm believes that the analyst day will reinforce its positive thesis.
Estimate Revisions
The proof is in the numbers, with analyst raising estimates across all time frames. For fiscal year 2017 analysts have taken estimates 3.1% higher over the last month. For 2018, there has been a 2.3% revision over the same time period.
In Summary
Some investors might be scared off by the run WDC has made since earnings. However, there is reason to believe the stock may go much higher from here. The analyst day on December 6th might be the bullish investor’s last chance to enter the stock before the real move begins.
Note:Want more articles from this author? Scroll up to the top of this article and click the FOLLOW AUTHOR button to get an email each time a new article is published.
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Bull of the Day: Western Digital (WDC)
Western Digital (WDC - Free Report) develops, manufactures, and sells data storage devices and solutions worldwide. The company's hard drives are designed for the desktop PC market and the high-end hard drive market and, recently, for the emerging market for hard drives specially designed for audio-visual applications, such as new video recording devices. The company was founded in 1970, is based in Irvine, California and now has over 72,000 employees. The stock is the Bull of the Day after it recently became a Zacks Rank #1 (Strong Buy).
Western Digital has a market cap of $18 Billion with a Forward PE of 12. The stock sports Zacks Style Scores of “B” in Value and “C” in both Growth and Momentum. The company sits in an industry ranked 15 out of 265 (Top 6%) of the Zacks Industry Rank.
Last quarter’s earnings have put a charge into the stock. Since the report back in October analysts have been raising estimates and price targets. Moreover, the company has an analyst day this week, which have investors excited that the stock could head to $80.
Earnings
Western Digital reported Q1 earnings on October 26th, with EPS coming in at $1.18 versus the $1.05 expected. Revenue came in higher than expected as well, with the company reporting $4.71 billion versus the $4.48 expected. The company also guided Q2 EPS higher, now seeing $1.85-$1.95 versus the $1.28 expected.
CEO Stephen D. Milligan had some comments on the quarter and the recent SanDisk acquisition:
“We are pleased with our performance in the September quarter, the first full quarter as an integrated company following the SanDisk acquisition in May... Demand for both hard drive and flash-based products was strong across all customer categories, driven by cloud and mobile applications, as well as better-than-expected PC market trends. We are encouraged by the uniformly positive response to the new Western Digital platform from our broadened customer base... The Western Digital team is executing very well against our top business objectives, including the integrations of the legacy HGST, SanDisk and WD operations, and our transition to next-generation NAND technology. We are on track to achieve our synergy goals associated with these integrations and our transition to 3D NAND continues to progress as planned.”
The stock reacted very well to the quarter, surging over 15% in just five trading days. The stock did pull back, close to post earnings levels before taking off again, now sitting around the $63 level. Analysts and investors are getting excited about the company’s analyst day coming up on December 6th.
Analyst Day
There is a lot of excitement coming from analyst about the investor’s day coming this week. Below I outline some comments that have shorts covering and new investors getting long before the event.
Susquehanna: The firm believes Western Digital has moved past its takeover and will deliver a clearer image of its future plans and vision. They believe that datacenter solutions make for an opportunity of $25 billion and have price target of $88.
RBC- The firm outlined several key drivers that will be beneficial to the stock and attract investors. They see the investor day event as an incremental positive.
RBC’s Outline:
1) Ability to sustain low-single-digit growth driven by uptick in NAND portfolio, nearline HDD, and enterprise systems solutions; some of the growth will be offset by PC and mission-critical HDD headwinds.
2) Gross margins should inflect higher with high 30% upside potential driven by better mix (more NAND and nearline), cost takeout (HGTS and SNDK), and revenue leverage.
3) 3D NAND roadmap and ability to achieve cross-over points in H2:17 with 64-L ramps.
4) Strong FCF generation that will be earmarked for debt reduction but long-term enables an attractive capital allocation story.
Near-term, we see two positives:
1) WDC could update Dec-quarter guide that is likely better than Street models given revenue and margin tailwinds.
2) Update/resolution on Samsung IP could be a positive for the stock given this is out of consensus models for 2017 and beyond. Maintaining Outperform and $72 price target. Upcoming Analyst Day: Download on Expectations and Path to $10.00+ EPS.
Stifel- The latest to join the party, taking its price target to $80 from $75 and reiterating its Buy rating. The firm believes that the analyst day will reinforce its positive thesis.
Estimate Revisions
The proof is in the numbers, with analyst raising estimates across all time frames. For fiscal year 2017 analysts have taken estimates 3.1% higher over the last month. For 2018, there has been a 2.3% revision over the same time period.
In Summary
Some investors might be scared off by the run WDC has made since earnings. However, there is reason to believe the stock may go much higher from here. The analyst day on December 6th might be the bullish investor’s last chance to enter the stock before the real move begins.
Note: Want more articles from this author? Scroll up to the top of this article and click the FOLLOW AUTHOR button to get an email each time a new article is published.
Zacks' best stocks under $10
As a Zacks Rank #1 Strong Buy, today's Bull of the Day has a short-term 1 to 3-month profit zone. But the Zacks Rank system also leads to longer-term investments. Starting today, you can look inside our lowest-priced stocks with 2X and 3X profit potential plus other private portfolios. Simply click here >>