Western Digital Offers Great Value

We should note that the academic study cited above showed that company insider buying was much more predictive than company insider selling, as insiders will often sell based on non-market related motivations (liquidity, personal reasons, etc.). Additionally, company insider transactions were less indicative for large cap stocks, which WDC most certainly is ($25 billion market cap). Thus, while we are cautious about the company insider selling, we feel the extremely low short interest (1.5% of float versus 6.5% for the market) is more indicative of the future performance of the stock. The stock has also seen moderate accumulation from institutions recently (+1% in last three months).

E) Qualitative Analysis & Conclusions

We'll now supplement our quantitative analysis with a qualitative discussion of some of the major growth catalysts and risk factors that could impact the stock price in the near future. As we mentioned at the start of the article, the faster and more durable SDD's are expected to capture significant market share within the space. With that being said, the overall market pie is growing as HDD shipments are expected to grow 2.9% a year from 2013 to 2018, as indicated by Gartner research. Gartner has also believes that SSD's will "complement, not replace" HDDs as the future capacity of firms is expected to be enormous. Given that Western Digital owns 45% of the entire HDD market, they are in a prime position to capture this growth. Nevertheless, there still remains a possibility that SDDs progress faster than people expect and become cost competitive with HDDs sooner rather than later. We are firm believers in the former case rather than the latter, but nevertheless it remains a possibility.

Overall, we feel that WDC is attractive valued with strong price momentum, EPS growth, and profit efficiency. The company releases earnings Tuesday after hours, with analysts expecting $2.10 EPS (according to Zacks). Western Digital has beaten consensus estimates eleven times in a row, and thus an earnings beat on Tuesday looks highly likely. Wall Street seems to agree with our bullishness, with the average price target on the stock set at $118.32 (+12% from current price), as shown below:

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Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in SPLS over the next 72 hours. The author wrote this article themselves, and it expresses their ...

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