Western Digital: Still Hot Despite Market Slowdown

Western Digital (WDC) is showing no signs that a global slowdown is affecting the hard drive market as electronic gadgets remain hot with consumers. The company is a hybrid of both a growth and a value pick. Earnings are projected to grow by 13.1% over the next five years, yet Western Digital has a 2008 P/E of only 6.75.

Western Digital Corporation is the second largest manufacturer of hard drives in world. The company's products include 3.5-inch, 2.5-inch, and 1.0-inch form factor drives, as well as enterprise hard drive products, which are offered under various brand names that include WD Caviar, WD Raptor, WD Scorpio, WD Passport, My Book, My DVR Expander, GreenPower, and WD Raid Edition.

WDC, a Zacks #1 Rank (Strong Buy), continues to introduce new products. Last year, Western Digital was the first to the market with a 320 gigabyte drive for laptops, significantly larger than competitors' drives.

The company continues to take advantage of strong demand for consumer gadgets, such as notebook computers and digital video recorders, which require ever expanding amounts of storage capacity.

On Apr 3, WDC announced it was increasing its stock buyback program by $500 million. Previously, the company's program authorized $250 million in share buy backs. This new program will extend the program for five more years.

In January, the company easily beat on estimates for the second quarter by 29.81% or 31 cents per share. Sales were up 54% in the quarter.

Brokerage analysts have been raising earning estimates since that report. Third-quarter consensus estimates rose 21 cents to $1.08 from 87 cents in the last 60 days. For the fourth quarter, estimates are up in the last 60 days by 10 cents to 81 cents from 71 cents per share.

Similarly, the full year estimates are also up. Consensus estimates rose 39 cents to $4.04 from $3.65 per share in the last 60 days. Four out of 19 covering analysts raised estimates in just the last 30 days.

Analysts are estimating 2008 year-over-year earnings growth of 108.14%.

The company is still cheap. It has a 2008 P/E of 6.75, far under the industry standard of 45.8. Its price-to-book is 2.85. The company has a tremendous five year average return on equity of 45.77%. WDC reports third-quarter earnings on Apr 24.

Comments

[Ellpond:]

Yet, in spite of the amazing growth and stellar performance the analysts keep issuing downgrades. Manipulation on a grand scale.

2008 Apr 06 08:55 AM

[Eka:]

Ah Ellpond, I know a lot of sell side analyst who buy while they say otherwise. I never trust them. WDC is fit nicely to the CAN SLIM method (invented by WILLIAM J O'NEIL). the querterly earning has performed beyond expectation for the last ......5 or six quarter!!

2008 Apr 07 11:28 AM

[Big John:]

WD makes excellent products and has great technical support when needed. That's why they have survived this competitive marketplace and grown accordingly.

2008 Apr 07 02:44 PM

[j-dog:]

All I know is, I bought it at 33.90 on recommendation from Tufts and it is sorely under-performing so far. Their buy price was 29-31. I'd love to see it reach that again....

2008 Apr 07 07:15 PM

[Socialism c...:]

j-dog...wanna explain why you'd buy at 33.9 when they recommended it between 29-31? personally, i don't ever bother with what "they" say...i look at PE & PEG, and where it is currently at relative to the chart. never go in big at the peak, just dip your toes in. if it falls, buy more. right? sorry ur hurting...but i wouldn't sell out yet. this company is gonna move up! hang in there and you *will* see your money back.

2008 Apr 08 06:18 PM

[Eka:]

Don't worry J-Dog. I even have this stock on avarage 26.66$, I bought it last January and did not sell it when it reached 33-34$ last month. I have added some more in this recent pullback between 26-27$. We should see unbroken resistence at 26$ level. In long term, WDC should pass 40$/share, I think the buyback program will help it.

2008 Apr 09 04:03 AM