As referenced in Matt Krantz’s article, Western Digital stock: A risky high flier, sell half, Western Digital has performed well for investors since 1987. Our analysis shows that it will continue to serve them well.

Western Digital Corp (WDC) is one of the few stocks in our 3000+ universe to get our Very Attractive Rating. To get this rating, WDC achieved (1) high and ris­ing eco­nomic prof­its (as dis­tinct from account­ing prof­its**) and (2) a cheap val­u­a­tion. As shown in our free report on WDC, the company’s return on invested capital (ROIC), at 41%, is in the Top Quin­tile of all the com­pa­nies we cover. At the same time, the stock boasts a 11.3% FCF Yield and our dynamic dis­counted cash flow analy­sis shows the cur­rent stock val­u­a­tion implies that the company’s profits will suffer a permanent decline of over 55%.

HIDDEN GEM: Our detailed val­u­a­tion model shows that WDC grew its “eco­nomic” prof­its by 226% while account­ing prof­its grew 194% dur­ing its last fis­cal year. Eco­nomic prof­its rose by $769mm while account­ing prof­its rose by $912mm. For details on what causes the dif­fer­ence between Eco­nomic Ver­sus Account­ing Prof­its, see Appen­dix 3 on page 10 of our free report on WDC.

See Appen­dix 4 to learn how WDC increased NOPAT by cut­ting costs and increased its NOPAT Mar­gin. See Appen­dix 5 for details on how WDC expanded its Invested Cap­i­tal at a slower rate than revenue and increased its capital turns. Appen­dix 7 (in the Return on Invested Cap­i­tal sec­tion) shows how the improved NOPAT Mar­gin and rising Invested Cap­i­tal Turns result in an increase in ROIC (to 40.6% from 21.4%) and Eco­nomic Profit, which rose by $769mm while Net Income rose by only $238mm.

As per Invest­ment Strat­egy 101 and How to make money pick­ing stocks, WDC fits the pro­file of a great stock to buy.

**See Finance 101 and Eco­nomic Ver­sus Account­ing Prof­its for more detail on why account­ing prof­its are not reli­able indi­ca­tors of cor­po­rate prof­itabil­ity or value creation.

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