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.