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Technology Stocks : Western Digital (WDC) -- Ignore unavailable to you. Want to Upgrade?

To: Pierre-X who wrote (7816)	11/23/1997 11:28:00 PM
From: Thomas George Warner	Read Replies (1) \| Respond to of 11057

techstocks.com Randall Williams-Gurian editor of Undervalued Stock Ideas, Randall Williams-Gurian says, "We recommended purchase of WDC in June of this year at $38 a share. Investors who followed our advice have been on a wild ride. The stock ran up to $55 in late July/early August, on the heels of the company's year-end financial performance. The company reported revenues of $4.2 billion, up 56% over year ago levels and earnings rocketed ahead to $2.85 a share, up 185% over fiscal 1996 levels of $1.00. The stock then hit the skids, due to worries over the Asian currency crisis, a weaker than expected first quarter profit report, and an announcement by the company that second quarter earnings would fall significantly below(between 20 and 30 cents) the mean forecast of Wall Street analysts of 83 cents a share. The company attributed the short fall to pricing pressures in the desk top market. One of WDC's Asian competitors was rumored to have dumped desk top products on the market at below cost. All of this has led to a number of analysts' downgrades and an over 60% decline in the price of WDC shares. So why do we maintain our strong buy recommendation? ú WDC has increased its investment in the enterprise storage product line, a market we expect to contribute significantly to its bottom line. This investment allows the company to reduce its dependence on the desk top market where it is experiencing pricing pressure. The company began shipping products for this market segment in 1997. The products offer capacities of 2.1GB and 4.3GB and are targeted at the workstation, LAN server and multi-user systems markets. ú The company has completed its transition from thin film inductive technology to magnetoresistive(MR) technology. The new technology will allow WDC to produce higher capacity drives at a lower relative cost which will have a positive impact on the company's margins. This is an important development given the current pricing pressure WDC is experiencing in the desk top market. ú The increased popularity of the $999 PC bodes well for WDC and should continue to stimulate demand for their disk drives. WDC can make money in this market due to their manufacturing efficiencies and tight cost controls. ú Analysts see a compound annual growth rate 19% for the hard drive industry through the year 2001. ú The company has no long term debt and has been repurchasing their stock. Since 1995 WDC has repurchased 22.2 millions shares of its common stock or about 23% of the shares outstanding. ú The stock currently trades at only 11 times our revised fiscal 1998 earnings estimates of $2.00 share and at only .50 times sales. ú WDC's worldwide market share of the data storage market has grown from 9% in 1992 to almost 20% in 1997. ú Hard drive revenues grew by 49% in fiscal 1997 and at a compound annual rate of 44% over the past 5 years. We thought WDC in the mid $30s was a great buy, and in the low $20s the stock provides an even better entry point. If you want to own a financially stable, well managed computer hardware company, which understands how to create shareholder value, buy WDC at current prices." Al Frank says, "Despite concerns that volatility in the Southeast-Asian currency and stock markets could lead to an eventual slowdown in personal computer sales, the future looks bright both in the near-and long-term. The PC industry reported strong world-wide growth of 16% for the third quarter and forecasts call for growth of 13% a year through the year 2000. In addition, Compaq Computer indicated that it has not been affected in any significant way by the Asian financial crises, nor does it expect to be and Dell Computer continues to see favorable business trends and remains very optimistic about its own business momentum for its fourth quarter. Our three-to-five year target price is $64 Surging PC sales should continue to power the disk drive industry, which is actually expected to grow by 19% a year through 2001. Western Digital, and producer of the Caviar, Enterprise and Portfolio lines of drives, is now likely to earn $3.40 a share in fiscal '98 (ends 6/98), despite recent "disappointing" first quarter earnings of "only" $.67 a share, a 91% jump over a year ago. Although Western and several other industry players have adjusted their December quarter production plans to address excess industry inventories, CEO Chuck Haggerty says WDC sees "strong demand for the quarter from the major PC and server manufacturers" due in part to "our new 9.1 gigabyte WD Enterprise SCSI drive and the new 2.1 gigabyte per platter WD Caviar platform - each featuring MR head technology." While it does have manufacturing facilities in Singapore and Malaysia, WDC is unlikely to be heavily impacted by the Asian turmoil. Nevertheless, the market has pummeled its shares, sending them plunging 25% in October to a price 60% below August's $55 high. Our three-to-five year target price is $64 and internet and multimedia applications continue to require vast amounts of data storage capacity.