Western Digital Corp Valuation – March 2019 #WDC

Company Profile (excerpt from Reuters): Western Digital Corporation (Western Digital), incorporated on October 26, 2000, is a developer, manufacturer and provider of data storage devices and solutions that address the needs of the information technology (IT) industry and the infrastructure that enables the proliferation of data in virtually every industry. The Company’s portfolio of offerings addresses three categories: Datacenter Devices and Solutions (capacity and performance enterprise hard disk drives (HDDs), enterprise solid state drives (SSDs), datacenter software and system solutions); Client Devices (mobile, desktop, gaming and digital video hard drives, client SSDs, embedded products and wafers), and Client Solutions (removable products, hard drive content solutions and flash content solutions). The Company also generates license and royalty revenue related to its intellectual property which is included in each of the three categories.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of WDC – March 2019

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 $14,501,831,037 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.24 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 -73.33% Fail
6. Moderate PEmg Ratio PEmg < 20 31.02 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.32 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 2.24 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.92 Fail
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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.61
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $23.30
MG Value based on 0% Growth $13.66
Market Implied Growth Rate 11.26%
Current Price $49.84
% of Intrinsic Value N/A

Western Digital Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $5.72 in 2015 to an estimated $1.61 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.26% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Western Digital Corp revealed the company was trading above its Graham Number of $23.31. The company pays a dividend of $2 per share, for a yield of 4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 31.02, which was below the industry average of 35.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-25.12.

Western Digital Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$25.12
Graham Number $23.31
PEmg 31.02
Current Ratio 2.24
PB Ratio 1.32
Current Dividend $2.00
Dividend Yield 4.01%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $9,742,000,000
Total Current Liabilities $4,350,000,000
Long-Term Debt $10,370,000,000
Total Assets $27,939,000,000
Intangible Assets $12,222,000,000
Total Liabilities $17,027,000,000
Shares Outstanding (Diluted Average) 290,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.62
Jun2018 $2.20
Jun2017 $1.34
Jun2016 $1.00
Jun2015 $6.18
Jun2014 $6.68
Jun2013 $3.98
Jun2012 $6.58
Jun2011 $3.09
Jun2010 $5.93
Jun2009 $2.08
Jun2008 $3.84
Jun2007 $2.50
Jun2006 $1.76
Jun2005 $0.90
Jun2004 $0.69
Jun2003 $0.87
Jun2002 $0.34
Jun2001 -$0.31
Jun2000 -$2.69
Jun1999 -$5.51

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.61
Jun2018 $2.56
Jun2017 $3.11
Jun2016 $4.29
Jun2015 $5.72
Jun2014 $5.41
Jun2013 $4.63
Jun2012 $4.74
Jun2011 $3.71
Jun2010 $3.75
Jun2009 $2.51
Jun2008 $2.46
Jun2007 $1.63
Jun2006 $1.10
Jun2005 $0.68
Jun2004 $0.31
Jun2003 -$0.41

Recommended Reading:

Other ModernGraham posts about the company

Western Digital Corp Valuation – May 2018 $WDC
Western Digital Corporation Valuation – February 2017 $WDC
Best Stocks Below Their Graham Number – August 2016
Western Digital Corporation Valuation – August 2016 $WDC
10 Low PE Stock Picks for the Defensive Investor – August 2016

Other ModernGraham posts about related companies

Qualcomm Inc Valuation – March 2019 #QCOM
Ametek Inc Valuation – March 2019 #AME
Advanced Micro Devices Inc Valuation – February 2019 $AMD
Qorvo Inc Valuation – February 2019 $QRVO
FLIR Systems Inc Valuation – February 2019 $FLIR
NetApp Inc Valuation – February 2019 $NTAP
Applied Materials Inc Valuation – February 2019 $AMAT
Microchip Technology Inc Valuation – February 2019 $MCHP
Broadcom Inc Valuation – February 2019 $AVGO
KLA-Tencor Corp Valuation – January 2019 $KLAC

Disclaimer:

The author held a long position in WDC but did not hold a position in any other 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.

Western Digital Corp Valuation – May 2018 $WDC

Company Profile (excerpt from Reuters): Western Digital Corporation (Western Digital), incorporated on October 26, 2000, is a developer, manufacturer and provider of data storage devices and solutions that address the needs of the information technology (IT) industry and the infrastructure that enables the proliferation of data in virtually every industry. The Company’s portfolio of offerings addresses three categories: Datacenter Devices and Solutions (capacity and performance enterprise hard disk drives (HDDs), enterprise solid state drives (SSDs), datacenter software and system solutions); Client Devices (mobile, desktop, gaming and digital video hard drives, client SSDs, embedded products and wafers), and Client Solutions (removable products, hard drive content solutions and flash content solutions). The Company also generates license and royalty revenue related to its intellectual property which is included in each of the three categories.

WDC Chart

WDC data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of WDC – May 2018

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 $25,747,895,251 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.39 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 -51.26% Fail
6. Moderate PEmg Ratio PEmg < 20 30.36 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.36 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 2.39 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.88 Fail
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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.85
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $41.33
MG Value based on 0% Growth $24.23
Market Implied Growth Rate 10.93%
Current Price $86.53
% of Intrinsic Value N/A

Western Digital Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $5.41 in 2014 to an estimated $2.85 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.93% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Western Digital Corp revealed the company was trading above its Graham Number of $51.79. The company pays a dividend of $2 per share, for a yield of 2.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 30.36, which was below the industry average of 49.78, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-24.48.

Western Digital Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$24.48
Graham Number $51.79
PEmg 30.36
Current Ratio 2.39
PB Ratio 2.36
Current Dividend $2.00
Dividend Yield 2.31%
Number of Consecutive Years of Dividend Growth 5

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $10,164,000,000
Total Current Liabilities $4,259,000,000
Long-Term Debt $11,076,000,000
Total Assets $29,004,000,000
Intangible Assets $13,035,000,000
Total Liabilities $17,704,000,000
Shares Outstanding (Diluted Average) 308,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.07
Jun2017 $1.34
Jun2016 $1.00
Jun2015 $6.18
Jun2014 $6.68
Jun2013 $3.98
Jun2012 $6.58
Jun2011 $3.09
Jun2010 $5.93
Jun2009 $2.08
Jun2008 $3.84
Jun2007 $2.50
Jun2006 $1.76
Jun2005 $0.90
Jun2004 $0.69
Jun2003 $0.87
Jun2002 $0.34
Jun2001 -$0.31
Jun2000 -$2.69
Jun1999 -$5.51
Jun1998 -$3.32

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.85
Jun2017 $3.11
Jun2016 $4.29
Jun2015 $5.72
Jun2014 $5.41
Jun2013 $4.63
Jun2012 $4.74
Jun2011 $3.71
Jun2010 $3.75
Jun2009 $2.51
Jun2008 $2.46
Jun2007 $1.63
Jun2006 $1.10
Jun2005 $0.68
Jun2004 $0.31
Jun2003 -$0.41
Jun2002 -$1.46

Recommended Reading:

Other ModernGraham posts about the company

Western Digital Corporation Valuation – February 2017 $WDC
Best Stocks Below Their Graham Number – August 2016
Western Digital Corporation Valuation – August 2016 $WDC
10 Low PE Stock Picks for the Defensive Investor – August 2016
10 Low PE Stocks for the Defensive Investor – July 2016

Other ModernGraham posts about related companies

Qualcomm Inc Valuation – May 2018 $QCOM
Advanced Micro Devices Inc Valuation – May 2018 $AMD
Ametek Inc Valuation – April 2018 $AME
Qorvo Inc Valuation – April 2018 $QRVO
FLIR Systems Inc Valuation – April 2018 $FLIR
NetApp Inc Valuation – April 2018 $NTAP
Applied Materials Inc Valuation – April 2018 $AMAT
Broadcom Inc Valuation – April 2018 $AVGO
Microchip Technology Inc Valuation – April 2018 $MCHP
KLA-Tencor Corp Valuation – March 2018 $KLAC

Disclaimer:

The author held a long position in WDC but did not hold a position in any other 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.

Western Digital Corporation Valuation – February 2017 $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 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  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 (Western Digital) is a developer, manufacturer and provider of data storage devices and solutions that address the needs of the information technology (IT) industry and the infrastructure that enables the proliferation of data in virtually every industry. The Company’s portfolio of offerings addresses three categories: Datacenter Devices and Solutions (capacity and performance enterprise hard disk drives (HDDs), enterprise solid state drives (SSDs), datacenter software and system solutions); Client Devices (mobile, desktop, gaming and digital video hard drives, client SSDs, embedded products and wafers), and Client Solutions (removable products, hard drive content solutions and flash content solutions). The Company develops and manufactures a portion of the recording heads and magnetic media used in its hard drive products.

WDC Chart

WDC data by YCharts

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

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. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of WDC – February 2017

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 $21,283,870,112 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.35 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 -10.72% Fail
6. Moderate PEmg Ratio PEmg < 20 19.75 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.05 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 2.35 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.35 Fail
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 Fail

Stage 2: Determination of Intrinsic Value

EPSmg $3.79
MG Growth Estimate -2.71%
MG Value $11.67
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $54.98
MG Value based on 0% Growth $32.23
Market Implied Growth Rate 5.63%
Current Price $74.91
% of Intrinsic Value 641.96%

Western Digital Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $4.63 in 2013 to an estimated $3.79 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.63% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Western Digital Corp revealed the company was trading above its Graham Number of $53.68. The company pays a dividend of $2 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 19.75, which was below the industry average of 28.12, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-29.38.

Western Digital Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$29.38
Graham Number $53.68
PEmg 19.75
Current Ratio 2.35
PB Ratio 2.05
Current Dividend $2.00
Dividend Yield 2.67%
Number of Consecutive Years of Dividend Growth 5

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $9,606,000,000
Total Current Liabilities $4,088,000,000
Long-Term Debt $12,944,000,000
Total Assets $28,975,000,000
Intangible Assets $14,474,000,000
Total Liabilities $18,243,000,000
Shares Outstanding (Diluted Average) 294,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.40
Jun2016 $1.00
Jun2015 $6.18
Jun2014 $6.68
Jun2013 $3.98
Jun2012 $6.58
Jun2011 $3.09
Jun2010 $5.93
Jun2009 $2.08
Jun2008 $3.84
Jun2007 $2.50
Jun2006 $1.76
Jun2005 $0.90
Jun2004 $0.69
Jun2003 $0.87
Jun2002 $0.34
Jun2001 -$0.31
Jun2000 -$2.69
Jun1999 -$5.51
Jun1998 -$3.32
Jun1997 $2.86

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.79
Jun2016 $4.29
Jun2015 $5.72
Jun2014 $5.41
Jun2013 $4.63
Jun2012 $4.74
Jun2011 $3.71
Jun2010 $3.75
Jun2009 $2.51
Jun2008 $2.46
Jun2007 $1.63
Jun2006 $1.10
Jun2005 $0.68
Jun2004 $0.31
Jun2003 -$0.41
Jun2002 -$1.46
Jun2001 -$2.17

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Defensive Investor – August 2016
10 Low PE Stocks for the Defensive Investor – July 2016
10 Undervalued Companies for the Defensive Dividend Stock Investor – June 2016
10 Companies Benjamin Graham Would Invest In Today – June 2016
10 Low PE Stocks for the Defensive Investor – June 2016

Other ModernGraham posts about related companies

Texas Instruments Inc Valuation – February 2017 $TXN
Knowles Corp Valuation – Initial Coverage $KN
Cree Inc Valuation – Initial Coverage $CREE
Cray Inc Valuation – Initial Coverage $CRAY
Kulicke and Soffa Industries Inc Valuation – Initial Coverage $KLIC
Keysight Technologies Inc Valuation – Initial Coverage $KEYS
Cohu Inc Valuation – Initial Coverage $COHU
Semtech Corporation Valuation – Initial Coverage $SMTC
Coherent Inc Valuation – Initial Coverage $COHR
Apple Inc Valuation – January 2017 $AAPL

Disclaimer:

The author held a long position in Western Digital Corp (WDC) but did not hold a position in any other 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.

Western Digital Corporation Valuation – August 2016 $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 Companies Benjamin Graham Would Invest In Today – July 2016.  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 (Western Digital) 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 product portfolio includes hard disk drives (HDDs), solid-state drives, direct attached storage solutions, personal cloud network attached storage solutions, and public and private cloud data center storage solutions. HDDs are its principal products. Its products are marketed under the HGST, SanDisk and WD brand names. Western Digital serves original equipment manufacturers, distributors, resellers, cloud infrastructure players and consumers. It has manufacturing facilities in China, Japan, Malaysia, the Philippines and Thailand, as well as sales offices throughout the Americas, Asia Pacific, Europe and the Middle East. Its subsidiaries include Hitachi Global Storage Technologies Holdings Pte. Ltd. and SanDisk Corporation.

WDC Chart

WDC data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

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.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of WDC – August 2016

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 $11,044,891,369 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.81 Fail
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 -12.74% Fail
6. Moderate PEmg Ratio PEmg < 20 12.57 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.09 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 1.81 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.42 Fail
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 Fail

Stage 2: Determination of Intrinsic Value

WDC value chart August 2016

EPSmg $3.71
MG Growth Estimate -2.98%
MG Value $9.39
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $53.77
MG Value based on 0% Growth $31.52
Market Implied Growth Rate 2.03%
Current Price $46.60
% of Intrinsic Value 496.18%

Western Digital Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $4.63 in 2013 to an estimated $3.71 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.03% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Western Digital Corp revealed the company was trading below its Graham Number of $57.8. The company pays a dividend of $2 per share, for a yield of 4.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 12.57, which was below the industry average of 22.64, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-34.99.

Western Digital Corp receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

WDC charts August 2016

Net Current Asset Value (NCAV) -$34.99
Graham Number $57.80
PEmg 12.57
Current Ratio 1.81
PB Ratio 1.09
Current Dividend $2.00
Dividend Yield 4.29%
Number of Consecutive Years of Dividend Growth 5

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $12,584,000,000
Total Current Liabilities $6,949,000,000
Long-Term Debt $13,660,000,000
Total Assets $32,877,000,000
Intangible Assets $14,985,000,000
Total Liabilities $21,717,000,000
Shares Outstanding (Diluted Average) 261,000,000

Earnings Per Share History

Next Fiscal Year Estimate $3.10
Jun2016 $1.06
Jun2015 $6.18
Jun2014 $6.68
Jun2013 $3.98
Jun2012 $6.58
Jun2011 $3.09
Jun2010 $5.93
Jun2009 $2.08
Jun2008 $3.84
Jun2007 $2.50
Jun2006 $1.76
Jun2005 $0.90
Jun2004 $0.69
Jun2003 $0.87
Jun2002 $0.34
Jun2001 -$0.31
Jun2000 -$2.69
Jun1999 -$5.51
Jun1998 -$3.32
Jun1997 $2.86

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.71
Jun2016 $4.31
Jun2015 $5.72
Jun2014 $5.41
Jun2013 $4.63
Jun2012 $4.74
Jun2011 $3.71
Jun2010 $3.75
Jun2009 $2.51
Jun2008 $2.46
Jun2007 $1.63
Jun2006 $1.10
Jun2005 $0.68
Jun2004 $0.31
Jun2003 -$0.41
Jun2002 -$1.46
Jun2001 -$2.17

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Defensive Investor – August 2016
10 Low PE Stocks for the Defensive Investor – July 2016
10 Undervalued Companies for the Defensive Dividend Stock Investor – June 2016
10 Companies Benjamin Graham Would Invest In Today – June 2016
10 Low PE Stocks for the Defensive Investor – June 2016

Other ModernGraham posts about related companies

Apple Inc Valuation – August 2016 $AAPL
Ametek Inc Valuation – August 2016 $AME
MTS Systems Corp Valuation – July 2016 $MTSC
Seagate Technology PLC Valuation – July 2016 $STX
Broadcom Limited Valuation – July 2016 $AVGO
Microchip Technology Inc Valuation – July 2016 $MCHP
Jabil Circuit Inc Valuation – July 2016 $JBL
KLA-Tencor Corp Valuation – July 2016 $KLAC
Linear Technology Corp Valuation – July 2016 $LLTC
Arrow Electronics Inc Valuation – July 2016 $ARW

Disclaimer:

The author held a long position in Western Digital Corporation but did not hold a position in any other 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.

Western Digital Corp Valuation – February 2016 $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 Companies Benjamin Graham Would Invest In Today – February 2016.  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 Corp (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.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

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.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of WDC – February 2016

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 $9,353,094,393 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.76 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 106.53% Pass
6. Moderate PEmg Ratio PEmg < 20 7.35 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.98 Pass
Score
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 2.76 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.36 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 February 2016

EPSmg $5.46
MG Growth Estimate 2.30%
MG Value $71.58
Opinion Undervalued
MG Value based on 3% Growth $79.22
MG Value based on 0% Growth $46.44
Market Implied Growth Rate -0.58%
Current Price $40.14
% of Intrinsic Value 56.07%

Western Digital Corp qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.74 in 2012 to an estimated $5.46 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.58% annual earnings loss 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 above the price.

Stage 3: Information for Further Research

WDC Charts February 2016

Net Current Asset Value (NCAV) $12.99
Graham Number $64.83
PEmg 7.35
Current Ratio 2.76
PB Ratio 0.98
Dividend Yield 4.98%
Number of Consecutive Years of Dividend Growth 4

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Dec2015
Total Current Assets $8,948,000,000
Total Current Liabilities $3,245,000,000
Long-Term Debt $2,062,000,000
Total Assets $15,466,000,000
Intangible Assets $3,058,000,000
Total Liabilities $5,909,000,000
Shares Outstanding (Diluted Average) 234,000,000

Earnings Per Share History

Next Fiscal Year Estimate $4.53
Jun2015 $6.18
Jun2014 $6.68
Jun2013 $3.98
Jun2012 $6.58
Jun2011 $3.09
Jun2010 $5.93
Jun2009 $2.08
Jun2008 $3.84
Jun2007 $2.50
Jun2006 $1.76
Jun2005 $0.90
Jun2004 $0.69
Jun2003 $0.87
Jun2002 $0.34
Jun2001 -$0.31
Jun2000 -$2.69
Jun1999 -$5.51
Jun1998 -$3.32
Jun1997 $2.86
Jun1996 $1.01

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.46
Jun2015 $5.72
Jun2014 $5.41
Jun2013 $4.63
Jun2012 $4.74
Jun2011 $3.71
Jun2010 $3.75
Jun2009 $2.51
Jun2008 $2.46
Jun2007 $1.63
Jun2006 $1.10
Jun2005 $0.68
Jun2004 $0.31
Jun2003 -$0.41
Jun2002 -$1.46
Jun2001 -$2.17
Jun2000 -$2.58

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stocks for the Defensive Investor – February 2016
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

Other ModernGraham posts about related companies

Texas Instruments Inc Valuation – February 2016 $TXN
Apple Inc Valuation – February 2016 $AAPL
Ametek Inc Valuation – February 2016 Update $AME
MTS Systems Corp Valuation – February 2016 Update $MTSC
Linear Technology Corp Valuation – January 2016 Update $LLTC
Seagate Technology PLC Valuation – January 2016 Update $STX
Microchip Technology Inc Valuation – January 2016 Update $MCHP
Avago Technologies Ltd Valuation – January 2016 Update $AVGO
KLA-Tencor Corp Valuation – January 2016 Update $KLAC
Lam Research Corp Valuation – January 2016 Update $LRCX

Disclaimer:

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.

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.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

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.

[/level-free]
[not-level-free]

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
Score
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

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

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

Other ModernGraham posts about related companies

MTS Systems Corporation Valuation – October 2015 Update $MTSC
Linear Technology Corp Valuation – October 2015 Update $LLTC
Altera Corporation Analysis – October 2015 Update $ALTR
Lam Research Corporation Analysis – October 2015 Update $LRCX
Amphenol Corporation Analysis – October 2015 Update $APH
NetApp Inc. Analysis – September 2015 Update $NTAP
EMC Corporation Analysis – September 2015 Update $EMC
Analog Devices Inc. Analysis – September 2015 Update $ADI
Garmin Limited Analysis – September 2015 Update $GRMN
Texas Instruments Inc Analysis – September 2015 Update $TXN

Disclaimer:

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.

Western Digital Corporation Analysis – July 2015 Update $WDC

500px-WesternDigitalLogo.svgWestern Digital Corporation (WDC) has grown its earnings well over the last few years, and pays a strong dividend, traits which may attract some investors. In addition, multiple analysts have focused on qualitative factors when reviewing the company. For example, Seeking Alpha contributor Philip Mause believes the market is making unrealistic assumptions about the company, while Akshansh Gandhi recently wrote that the company’s acquisitions will propel it long-term. These are great factors to consider in the final stages of an investment decision, but first one must use quantitative metrics to determine the company’s intrinsic value.

Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits.

The model is inspired by the teachings of Benjamin Graham and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using the ModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

[level-free]
To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
[/level-free]
[level-mg-stocks-screens-subscriber]

Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – PASS
  3. Earnings Stability – Positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – Has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – Earnings per share has increased by at least 1/3rd over the last 10 years, using 3-year averages at the beginning and end of the period – PASS
  6. Moderate PEmg (price over normalized earnings) ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – Must pass at least 4 of the following 5 tests or be suitable for a Defensive Investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  4. Dividend Record – Currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data

Recent Price $78.58
MG Value $147.42
MG Opinion Undervalued
Value Based on 3% Growth $84.06
Value Based on 0% Growth $49.28
Market Implied Growth Rate 2.53%
Net Current Asset Value (NCAV) $10.50
PEmg 13.55
Current Ratio 2.62
PB Ratio 2.01

Balance Sheet

Current Assets $8,429,000,000
Current Liabilities $3,218,000,000
Total Debt $2,203,000,000
Total Assets $15,176,000,000
Intangible Assets $3,145,000,000
Total Liabilities $5,950,000,000
Outstanding Shares 236,000,000

Earnings Per Share

2015 (estimate) $6.41
2014 $6.68
2013 $3.98
2012 $6.58
2011 $3.09
2010 $5.93
2009 $2.08
2008 $3.84
2007 $2.50
2006 $1.76
2005 $0.90

Earnings Per Share – ModernGraham

2015 (estimate) $5.80
2014 $5.41
2013 $4.63
2012 $4.74
2011 $3.71
2010 $3.75

Dividend History

Free Cash Flow

Conclusion

Western Digital Corporation passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only concerned by the short dividend history, while the Enterprising Investor has no initial concerns. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from $3.71 in 2011 to an estimated $5.80 for 2015. This is a fairly strong level of demonstrated growth and outpaces the market’s implied estimate for annual earnings growth of 2.53% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 11.29% annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value well above the current price, indicating that Western Digital Corporation is significantly undervalued at the present time.

Disclaimer:  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.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

[/level-mg-stocks-screens-subscriber]

Western Digital Corporation Quarterly Valuation – January 2015 $WDC

500px-WesternDigitalLogo.svg

Western Digital does fairly well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor is concerned with the short dividend history and the high PB ratio, while the Enterprising Investor has no initial concerns. As a result, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $3.71 in 2011 to an estimated $6.26 for 2015. This is a strong level of demonstrated growth which is well above the market’s implied estimate of 4.59% annual earnings growth over the next 7-10 years. Here, the historical growth in EPSmg over the last five years is around 13.8% per year. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur. A significant slowdown would have to occur to justify a price as low as the market is demonstrating. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.

Be sure to check out previous ModernGraham valuations of Western Digital Corporation (WDC) for greater perspective!

Read the full valuation on Seeking Alpha!

WDC Chart

WDC data by YCharts

Disclaimer:  The author did not hold a position in Western Digital Corporation (WDC) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Western Digital Corporation Quarterly Stock Valuation – September 2014 $WDC

500px-WesternDigitalLogo.svg

Western Digital appears to be a solid opportunity for purchasing a great company at a good price. The Defensive Investor has few concerns, and in fact is only disappointed by the company’s short dividend history. The Enterprising Investor is likewise situated, and has no initial concerns. Over the last ten years, the company has seen its EPS grow from an average of $1.72 to an average of $5.75, indicating a high level of long-term growth that pleases the Defensive Investor.

Overall, the company is rated as fairly valued by the ModernGraham model, which looks primarily at the company’s growth in EPSmg (normalized earnings). EPSmg has gone from $3.75 in 2010 to $5.41 for 2014, leading to an average growth of nearly 8.9% each year. The valuation model utilizes a built-in safety margin by reducing that growth rate to 6.65% in order to forecast growth over the next 7-10 years, and that rate is above the market’s current forecast of only 4.67%. Based on the ModernGraham forecast for growth, the model returns an estimate of intrinsic value of $117.92, which falls within a margin of safety relative to the current price of around $96.50. Value investors are therefore encouraged to proceed with further research to determine whether Western Digital is suitable for their own individual portfolios.

Read the full valuation on Seeking Alpha!

WDC Chart

WDC data by YCharts

Western Digital Corp Quarterly Valuation – June 2014 $WDC

500px-WesternDigitalLogo.svgBenjamin 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 5 Highest Dividend Yields Among Undervalued Companies for the Enterprising Investor.  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 specific look at how Western Digital Corp (WDC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Western Digital Corporation (Western Digital) is a developer and manufacturer of storage solutions, which enables people to create, manage, experience and preserve digital content. The Company designs and makes storage devices and home entertainment products under the HGST, WD and G-Technology brands. The Company’s principal products are hard drives that use one or more rotating magnetic disks (magnetic media) to store and allow fast access to data. Hard drives are primary storage medium for digital content. The Company operates its global business through two independent subsidiaries: Hitachi Global Storage Technologies Holdings Pte. Ltd. (HGST) and Western Digital Corporation (WD). In September 2013, the Company announced that it has completed the acquisition of sTec, Inc. In October 2013, Western Digital Corporation completed the acquisition of Virident Systems, Inc.

WDC Chart

WDC data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $91.89
MG Value $146.66
MG Opinion Undervalued
Value Based on 3% Growth $84.55
Value Based on 0% Growth $49.57
Market Implied Growth Rate 3.63%
Net Current Asset Value (NCAV) $7.41
PEmg 15.76
Current Ratio 2.22
PB Ratio 2.46

Balance Sheet – 3/31/2014

Current Assets $8,306,000,000
Current Liabilities $3,747,000,000
Total Debt $2,344,000,000
Total Assets $15,332,000,000
Intangible Assets $3,097,000,000
Total Liabilities $6,564,000,000
Outstanding Shares 235,000,000

Earnings Per Share

2014 (estimate) $7.94
2013 $3.98
2012 $6.58
2011 $3.09
2010 $5.93
2009 $2.08
2008 $3.84
2007 $2.50
2006 $1.76
2005 $0.91
2004 $0.70

Earnings Per Share – ModernGraham

2014 (estimate) $5.83
2013 $4.63
2012 $4.74
2011 $3.71
2010 $3.75
2009 $2.51

Dividend History

WDC Dividend Chart

WDC Dividend data by YCharts

Conclusion:

Western Digital Corp is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only concern is the short dividend history while the company passes all of the Enterprising Investor’s requirements.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  From a valuation side of things, the company appears significantly undervalued after growing its EPSmg (normalized earnings) from $3.75 in 2010 to an estimated $5.83 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of 3.63% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out the previous ModernGraham valuations of Western Digital Corp (WDC) for more perspective!

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 Corp (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.

Disclaimer:  The author did not hold a position in Western Digital Corp (WDC) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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