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Western Digital Corporation Valuation – October 2015 Update $WDC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Western Digital Corporation (WDC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Western Digital Corporation, is a data storage solutions company. The Company is a developer, manufacturer and provider of data storage solutions that enable consumers, businesses, governments and other organizations to create, manage, experience and preserve digital content. The Company’s Technology product includes: Hard Disk Drives and Solid-State Drives. Hard Disk Drives, provide non-volatile data storage. Solid-State Drives, are semiconductor and non-volatile media. The Company offers solutions including: Enterprise Storage Solutions, Client Desktop and Notebook PCs, Branded Product Solutions, Consumer Electronics Solutions. The Company’s products are marketed under the HGST, WD and G-Technology brand names.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of WDC – October 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $20,260,133,006 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.63 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 124.82% Pass
6. Moderate PEmg Ratio PEmg < 20 12.46 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.89 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.63 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.41 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

WDC value Chart October 2015

EPSmg $5.98
MG Growth Estimate 3.93%
MG Value $97.74
Opinion Fairly Valued
MG Value based on 3% Growth $86.66
MG Value based on 0% Growth $50.80
Market Implied Growth Rate 1.98%
Current Price $74.47
% of Intrinsic Value 76.19%

Western Digital Corporation qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the short dividend history.  The Enterprising Investor has no initial concerns.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.74 in 2012 to an estimated $5.98 for 2016.  This level of demonstrated earnings growth supports the market’s implied estimate of 1.98% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Western Digital Corporation (WDC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

WDC Charts October 2015

Net Current Asset Value (NCAV) $10.92
Graham Number $73.84
PEmg 12.46
Current Ratio 2.63
PB Ratio 1.89
Dividend Yield 2.42%
Number of Consecutive Years of Dividend Growth 4



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Most Recent Balance Sheet Figures

Total Current Assets $8,517,000,000
Total Current Liabilities $3,242,000,000
Long-Term Debt $2,156,000,000
Total Assets $15,181,000,000
Intangible Assets $3,098,000,000
Total Liabilities $5,962,000,000
Shares Outstanding (Diluted Average) 234,000,000

Earnings Per Share History

Next Fiscal Year Estimate $6.07
Jun15 $6.18
Jun14 $6.68
Jun13 $3.98
Jun12 $6.58
Jun11 $3.09
Jun10 $5.93
Jun09 $2.08
Jun08 $3.84
Jun07 $2.50
Jun06 $1.76
Jun05 $0.90
Jun04 $0.69
Jun03 $0.87
Jun02 $0.34
Jun01 -$0.31
Jun00 -$2.69
Jun99 -$5.51
Jun98 -$3.32
Jun97 $2.86
Jun96 $1.01

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.98
Jun15 $5.72
Jun14 $5.41
Jun13 $4.63
Jun12 $4.74
Jun11 $3.71
Jun10 $3.75
Jun09 $2.51
Jun08 $2.46
Jun07 $1.63
Jun06 $1.10
Jun05 $0.68
Jun04 $0.31
Jun03 -$0.41
Jun02 -$1.46
Jun01 -$2.17
Jun00 -$2.58

Recommended Reading:

Other ModernGraham posts about the company

The Best Stocks of the IT Hardware Industry – September 2015
The 20 Best Stocks For Value Investors This Week – 7/25/15
Western Digital Corporation Analysis – July 2015 Update $WDC
The Best Value Stocks of the IT Hardware Industry – May 2015
27 Companies in the Spotlight This Week – 4/4/15

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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