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Why Investors Should Accumulate Western Digital From Here

Nov. 02, 2021 1:27 AM ETWestern Digital Corporation (WDC)MU62 Comments


  • WDC's supply constraint issues are temporary.
  • Stock trades below that of Micron and Seagate on a forward P/E basis.
  • Strong demand and revenue potential in 2022.
  • Looking for a helping hand in the market? Members of DIY Value Investing get exclusive ideas and guidance to navigate any climate. Learn More »
Data Storage Company Western Digital To Purchase Sandisk For 19 Billion

Justin Sullivan/Getty Images News

When Western Digital (NASDAQ:WDC) tumbled by almost 10% after posting fiscal first-quarter results, it was already stuck in a downtrend. The storage supplier, along with memory chip supplier Micron Technology (MU) underperformed while the Nasdaq index closed at highs.


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This article was written by

Chris Lau profile picture

Chris Lau is an individual investor and economist with 30 years of experience covering life science, technology, and dividend-growth income stocks. He has degrees in Microbiology and Economics.

Chris runs the investing group DIY Value Investing where he shares his top stock picks of undervalued stocks with catalysts for upside, dividend-income recommendations with quant and payment calendar tracking, high upside plays, and research requests to help you become a better do-it-yourself investor. Learn more.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (62)

Chris Lau profile picture
WDC posted Q4 Non-GAAP EPS of $1.78 beats by $0.06.
Revenue of $4.53B (-7.9% Y/Y) misses by $40M.
Shares -6.86% PM.

Cloud revenue increased 5%, Client revenue declined 14%, and Consumer revenue declined 23% YoY.

Expect fiscal first quarter 2023 revenue to be in the range of $3.60 billion to $3.80 billion ($4.79B consensus) with Non-GAAP EPS in the range of $0.35 to $0.65 vs. $1.92 consensus.

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Chris Lau profile picture
WDC +14% against SPY's -10%: Per SA Alerts,

Western Digital (NASDAQ:WDC) announced its exploring strategic alternatives, including separating its flash and HDD business.

The announcement comes after activist Elliott Management disclosed a stake last month and pushed for the company to explore separating the company.

“The Board is aligned in the belief that maximizing value creation warrants a comprehensive assessment of strategic alternatives focused on structural options for the company’s Flash and HDD businesses,” WDC CEO David Goeckeler said in a statement.

Western Digital (WDC) surged 14.% on May 3 after activist Elliott disclosed a $1 billion, or 6% stake, and called for the company to separate its hard disk drives and NAND flash memory businesses. By separating the businesses, Elliott said WDC could reach $100+ by the end of 2023.

Elliott last month also offered $1 billion of incremental equity capital into the flash business at an enterprise value of $17 to $20 billion to be used for a spin-off or as equity financing in a sale or merger.

“Through this process, we are actively engaging in a broad range of strategic and financial alternatives that will help further optimize the value of Western Digital, including Elliott’s offer to invest incremental equity capital in our Flash Busines," Goeckeler said in the statement. "We look forward to continuing our constructive dialogue with Elliott as this process unfolds.”
WDC stock tested a $50 low and bounced back. The drop may not happen again. As such, investors should consider accumulating the stock at current levels."

its 10 percent under that.....
@testfd Gee...the author was not smart enough to predict Russia invasion of Ukraine.

true chris is a good writer and do appreciate his articles....usually wdc is a good buy around 40 but not sure if it gets there this time..right now its dirt cheap!
Chris Lau profile picture
@testfd thanks. at $40, it's certainly buy. I would do so if it ever got there.

@Arcmor I fixated on China; CCP research takes a LOT of time. With that done, I'm prepared on how Russia-China unfold next (reserve currency, energy trade).
chris comments?
Chris Lau profile picture
@testfd Commodity and supply costs hurt its forecast. The stock is very cheap from here.
@Chris Lau

thx i do agree but it has a tendency to get to 40 not sure this time if we do 40 to 72 and rinse and repeat one day this has to break over 100....but yes wdc is a fantastic company....lets see still its ok to add here imo...
My guess is that Eulau resigned because the stock as gone nowhere in 5 years and he must be very frustrated with Massengill.
Western Digital needs to hire Mark Durcan (former Micron CEO) as their new chairman and dump that fossil Massengill. That would boost the stock price by 20 points in a week.
Chris' analysis sounds accurate. Some things holding the stock back are:
1- belief that double ordering is occurring and inventory builds by customers will result in oversupply late this year that will in turn cause margin erosion. This is incorrect for two reasons:
a) demand for IT products will continue strong not just in the US but
elsewhere as Europe and emerging market countries get past COVID -
they realize they need more CAPEX in IT hardware to be successful in this
century. PC demand will stay strong as so many workers return to the
office - at least part of the time - and companies upgrade IT infrastructure
b) Production of so many things is being constrained by supply chain
issues - including semiconductor equipment - and semi companies are not
ramping capacity as quickly as they would like.

2- WDC Management ALWAYS errs on the low side in its forecast because they are idiots and are perfectly content to ignore concerns of stockholders so there is zero chance of not meeting expectations. They tell themselves they are building the company for the coming 10 years - but every quarter you can make investors think the future is not quite so bright and perpetually keep stock prices low. LOWBALLERS!!!!
3- Their claims of superior technology in NAND and HDD are so old and have proven so useless in helping them gain market share - yet they still continue repeating the same old crap. NO CREDIBILITY ON TECHNOLOGY SIDE.
4- They still do not have a person with semiconductor memory market experience on their board - instead they went for "diversity" in their recent board additions. This reflects on the Chairman....
5- Mr. Massengill is so completely incompetent for his job that it is breathtaking. He's an old HDD guy - used to be pretty good in that arena but doesn't know semiconductor memory market very well. They should hire a new chairman who understands this - I recommend
6- Goekeler is good operationally and has a technology background but he has trouble understanding and reacting to the changing market competitive landscape. Their delays in hard drive progress hurt them in the HDD business as Seagate and Toshiba took 8 market share points in the last 15 months. It will be hard to gain it back -
Chris Lau profile picture
@sesavas Thank you for sharing your insight.
WDC -10% in pre-market.
STX up to +20% yesterday.
Mack Attack profile picture
This company is looking like an excellent sleeper stock!
Chris Lau profile picture
Per SA, "We downgraded MU & WDC in October as the 'expectations of a soft 1H22 demand outlook' for PC/Server/Handset, with 1H22 DRAM/NAND spot/contract pricing declines accelerating," analyst Vijay Rakesh writes in a note.

"However, our recent checks indicate the 'ACTUAL' demand is improving across all three markets with 1) 1Q22 PC/NB builds only FLAT to down 5% q/q (ABOVE our prior assumption for down 10-15% q/q), with 2022 PCs FLAT to UP 5% y/y, 2) Handsets better as China OEMs could have a counter-seasonal FLAT 1Q22 (ABOVE our previous assumption of down 10% q/q), 3) Server demand could improve in 1Q22 with AMZN/GOOGL orders returning potentially early 1Q22, despite >10 wk DRAM inventory."

Rakesh is boosting his price target on Micron to $95 from $75 and his target on Western Digital to $75 from $55.
@Chris Lau Love how they use the words 'ACTUAL'. "Oh sh!t...we didn't read the data right and extended a line straight down to zero. Whoops!"

For WDC, they really need to issue updated guidance to see it jump above $70 based on NAND. They sand-bagged the HDD half of their business in their guidance.
@Chris Lau Imagine how much money we can make if we can sue these analysts for incompetence.
Chris Lau profile picture
@Arcmor Almost zero. 'SHAREHOLDER ALERT' lawsuit headlines DIY knows is noise. Analysts have it good: they ~ always rate stocks a buy and are not penalized for poor calls.

My rating is public: www.tipranks.com/...
DIY tracks portfolio returns [join for Black Friday sale rate]: seekingalpha.com/...
This management has destroyed this stock
What's up with this @#$& stock?
@gdpalltheway wish I knew. Looked like it had found a bottom and some support around 55. Now it appears it wants to go lower. Maybe retest the 52 region.

Wish there was news out there, but I dont see anything as to the ridiculous cratering other than I just entered a couple days ago.
GeneralUrsus profile picture
@gdpalltheway The assholes that manipulate are doing their job. I bought more options....🤷🏽
@gdpalltheway Only thing I can think of is because of CSCO who blamed supply-chain issues for their reduced guidance and the market, like a phantom memory, selling off once again all the other tech stocks that also said a same thing (except APPL, of course they are untouchable.)
Sorry guys, I bought yesterday which clearly caused the cratering today. I have that effect on stocks. Anything you want to get in to? Just let me know and I'll buy it therefore inducing cratering.
@tyoungt1 Snap!
I've found my doppleganger.

I have that effect too on stocks. buy and it tanks 20%
Chris Lau profile picture
@tyoungt1 @Tambo210 Which other stocks?

Come over to seekingalpha.com/...
Happens often the moment we discuss the stock in the forum.

Notice a few cracks appearing: stock sales, convertible bond sales, hype stocks tanking. Tech market divergence? $WDC is a buy again should your magic (on cratering stocks) work :)
@Chris Lau For me $C, $RIG, $T, $NVTA, $PACB
rudz profile picture
12 Nov. 2021
Wdc is Lowes as STX is HD....no way STX above 100 and WDC stays this far behind
Chris Lau profile picture
@rudz That is a good comparison. One of those two retailers is on our DIY dividend champs list.

@rudz There was time when LOW was HD and HD was LOW.
Perfect timing!
Chris Lau profile picture
From SA: Seagate Technology (NASDAQ:STX) shares hit a 52-week high, Thursday, as the storage technology company added to gains that have come in the wake of its most-recent quarterly results.

In late trading, Seagate (STX) was up more than 7%, to reach as high as $106.19 a share. Since reporting fiscal first-quarter results on Oct. 22, Seagate shares have risen more than 22%.
What is going on? WDC is below 12 P/E wow they better start execute to make t his one pop up to $150
@Tony215 Or else they could be bought out dirt cheap
Look at this company: it has been NOWHERE and is going NOWHERE.
Xxfactor profile picture
Nice play I will def accumulate because you know your stuff. Definitely going to sign up for your service as well. Any insight on CMBM being in the dumps right now?
Chris Lau profile picture
@Xxfactor CMBM issued an earnings warning. Its among of value picks expected to underperform briefly before breaking out again. TEVA, BHC in pharma and NTGR, ARLO, NOK, IBM, WDC are examples in tech for stocks requiring covered calls, patience, accumulating at the bottom.

All: xxfactor's on the ball in his comments posted on CMBM here:

Xxfactor profile picture
@Chris Lau Off topic but have you looked at ZENYF? I'm thinking of jumping in but it just turned down. Warrants expire today if that has anything to do with it?
More troubkes soon for seagate they cannot match wdc. Wdc has strong cash, capital, fabs only time to push seagate out of hdd. Sandisk alone could worth higher 25B today so basically WDC is a $150+ stock. It will get there
Chris Lau profile picture
@Tony215 I long argued (incorrected, with STX up and WDC down) that WDC has the value and the SSD strength.
@Chris Lau Yup, I don't think WDC will be going away that is why people wouldnt want $WDC at this price tag. Amazon or any fang tech could buy $WDC on the cheap it is only a matter of time that will happen. $WDC is undervalued and the emerging markets are huge and they are one of the players. The market is waiting for other companies to become more expensive and $WDC becomes cheaper over time.
@Tony215 Those companies wouldn't buy WDC....NAND business is too capital intensive. You could buy WDC and spin off the NAND business.
Might get the HDD business for free.
WDC should reinitiate a quarterly dividend. That would send a message that earnings are stable, and invite in institutions that only invest in dividend paying companies. The dividend wouldn't even have to equal the one that was eliminated.
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