Hi all,
First time poster here. Would love to hear people's thoughts on Western Digital Corporation (WDC) as a potential value stock? While shares have rallied c. 100%+ in the last twelve months, I've recently gone through the last 10 years 10-Ks and the most recent full year results, and researched the data storage industry and think intrinsic value is c. $85 - $110 per share vs. current price of c. $65.
I first started looking at this business about 18 months ago when stock as priced at $32 (!). I question whether I have become emotionally attached to the stock hence my still positive view on it (am I refusing to accept that I've missed it?). Conversely, I recently saw Whitney Tilson's interview on the Motley Fool where he talks about "I've missed it" being the 3 most dangerous words in investing - if a stock remains significantly below a conservative estimate of intrinsic value (say 33% - 50%), even if it has just doubled, it still constitutes value, right?
My basic investment thesis is that the data storage market is one with great business prospects for the foreseeable future (big data, exponential growth in digital content etc. - therefore a secular growth story), and WDC is now the dominant operator in the hard disk drive space, with a cash-cow component (its HDD operations) and a growth component (SSD operations). As for valuation, after the 100+% rally, its currently priced at c. 7x maintainable free cash flow, has a long-term average ROIC of 20%+ (10 year avg is c. 57%, current year is 25%), net cash position, and a dominant player within a duopoly (with STX) giving it pricing power. Also, the "PC/HDD is dead" narrative doesn't wash in my view (which was the primary reason for undervaluation in the first place) as 50% of WDC's business is non-PC (enterprise storage i.e. cloud, DVRS, video game consoles, other digital storage) and SSD/flash storage is not the appropriate nor economic storage medium for much of the data out there.
Any thoughts? Would love to discuss this with interested individuals.
I expect many would say that its had its run, but I'm not so sure.
Just trying to think independently,
Independent Value. |
