Looks like the market agrees with the 'earlier poster' since it was down .75% and WDC was UP 2.29%. Also, some well respected industry pundits are thinking the same as the 'earlier poster' in the article below. I am sorry you were not aware of the implications of WACC and you missed this jump. If you had purchased shares when I said it was at the bottom 'earlier', you would have made a lot of money. Lots of good stuff in the article you should read, but don't let it sway your opinion. There should be some other articles you could find that will reinforce your views.
DJ Tech Trader Daily: Western Digital's Buybacks: Do They Mean NAND Is Doing Much Better Than Feared? -- Barron's Blog
May 15, 2018 15:30:00 (ET)
By Tiernan RayShares of hard drive and NAND flash chip maker Western Digital ( WDC) are up $1.84, or 2.3%, at $82.96, after the company this morning said it priced $2.5 billion of term loans, and said it will buy back $1 billion of its stock, half of that this quarter.
Western said the new loans, priced at Libor plus 1.75%, is a quarter of a percentage point lower than prior loans issued in 2017, and it has used the new proceeds to settle the prior loans. Western has been in the process of paying down debt since buying SanDisk, maker of the flash chips, in 2016 for nearly $18 billion.
Western said it bought back $155 million in stock last quarter, and will buy back up to $1 billion under its current authorization, and "at least 50 percent of the repurchases are targeted for the remainder of the company's current fiscal quarter," meaning the fiscal Q4 ending in June.
"The company has already commenced repurchasing its common stock and the exact amount of repurchases will depend on market conditions," said Western.
Some are taking this as a sign NAND flash is doing a lot better than feared amidst constant worries of a plunge in prices.
Amit Daryanani with RBC Capital, who has an Outperform rating on the shares, and a $120 price target, wonders this afternoon whether the buyback promise "implies that WDC is confident that NAND downturn isn't as bad as feared by investors."
"In fact, if NAND pricing stabilizes in 2H18 and cycle fears ease, we could see the buyback program being enhanced in size, should the stock continue to linger at these levels," he muses.
Daryanani reflects on what was said back on the company's conference call on April 26:
On its EPS call, WDC maintained its view that NAND bit growth should be at the high end of 35% to 45%. The company also noted that NAND supply could be constrained relative to demand in 2H18 after the industry stabilizes this quarter. We think a realistic scenario in H2:18 could be -- 96L transitions are more complicated for the industry and as a result bit output is constrained while demand remains robust -- resulting in ASPs stabilizing and certainly declining less than cost reductions.
Daryanani estimates the buybacks can add five to six cents per share to the current estimate for this quarter's EPS of $3.45. Moreover, lower interest expense from the re-pricing of its debt can add 25 cents per share to its annual run-rate of earnings of $14.50 per share.
Guggenheim's Robert Cihra, who has a Buy rating on the stock and a $125 price target, writes that his outlook for fiscal 2019's EPS now goes from $13.29 to $13.52 because of the new buybacks.
Like Daryanani, Cihra thinks price declines in NAND are set to be much more mild than people feared:
Looking at the broader NAND market YTD, as suppliers gradually ramp their 3D production, market ASPs started declining again in the Mar-qtr, now starting to cycle down after last year's Y/Y increase. But we believe declines have so far been slightly more moderate than expected (i.e., we estimate WDC and market NAND ASP declined just 2%Q/Q in the Mar-qtr), and much better than many had anticipated. For the Jun-qtr, we have been estimating ASP declines increasing to -9%Q/Q as 3D supply continues to increase but believe bit demand is also reaccelerating to double-digit Q/Q growth thanks to NAND demand being highly elastic (e.g., strong demand for higher- capacity enterprise/datacenter and PC SSDs, and 64/128GB smartphones).
Evercore ISI's CJ Muse is similarly delighted, reiterating an Outperform rating, and a $130 price target, and writing that the buybacks will add 32 cents to earnings per share this calendar year, and a whopping 56 cents to calendar 2019 earnings, which he thinks adds "further upside to a stock that we continue to view as undervalued, particularly when compared to Seagate Technology ( STX)."
Shares of Western's competitor Micron Technology ( MU) are also on the rise today, having gotten a price target increase from Kevin Cassidy of Stifel Nicolaus th to $101 this morning. Micron is up 76 cents, or 1.4%, at $53.76.
Previously: Why Western Digital Can Gain 45% Despite Declining HDD Business, by Jack Hough, May 14, 2018.
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May 15, 2018 15:30 ET (19:30 GMT) |
