Sunil Shah's  Instablog

Sunil Shah
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A fund manager who cut his cloth in Schroders London. He joined Coronation South Africa in 1998, running the Smaller Companies Fund which had the best 5-yr record in the sector during his tenure. In 2005 he left Coronation to pursue his passion in writing (and invest without constraints). He... More
My blog:
whitemansnumbers.com
My book:
White Man's Numbers: Excerpt Chapter 13
  • Western Digital. $20bn Market Cap In A Year 0 comments
    Feb 1, 2012 11:34 AM | about stocks: STX, WDC

    so in summary stx have secured 1bn cash flow per quarter. on a 5x cash flow its going to 20bn mkt cap very quickly. Already big jump, but a lot more to come.
    But where's the opportunity Now?
    WDC after hitachi will make 90m HDDs, whereas stx will make 70-80m.
    They will get higher prices, have less oem in the mix. They have a better track record in operations,
    Far better.
    And all this will happen after Hitachi is consummated. The big news for WDC is the cashflow after merger. Market is still asleep!

    IMO they could easily make a 1bn per qtr too! Put that on a 5X cash flow you get 20bn market cap, or 16bn mkt cap on 4X.

    Leave out the 3.9bn cash on balance sheet, leave out the price they pay for hitachi. Just for simplicity they bought hitachi at 4bn, for about 30-40m HDD's. That was before the pricing uplift...before asp rise to give a 15% net cash margin.
    So today you have a company making 90m HDD's per quarter, making a billion a quarter.
    Watch the market cap of WDC after Hitachi go to 20bn, or up another 100% in a year.

    Disclosure: I am long WDC.

    Stocks: STX, WDC
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