WDC Stock Forecast: Price Drop Should Not Worry Investors

 This Article was written by Anna Latini, a Financial Analyst at I Know First 

WDC Stock Forecast


  • One Outstanding Year For WDC Stock
  • WDC Long Term Strengths
  • Why Did WDC Share Drop?
  • I Know First Bullish Forecast

Western Digital Corporation (commonly referred to as Western Digital and often abbreviated as WDC or WD) is an American computer data storage company and one of the largest computer hard disk drive manufacturers in the world, along with Seagate Technology.

Western Digital Corporation has a long history in the electronics industry as an integrated circuit maker and a storage products company. Western Digital was founded on April 23, 1970, by Alvin B. Phillips, a Motorola employee, as General Digital, initially (and briefly) a manufacturer of MOS test equipment. It rapidly became a specialty semiconductor maker, with start-up capital provided by several individual investors and industrial giant Emerson Electric. Around July 1971, it adopted its current name and soon introduced its first product, the WD1402A UART.

WDC Stock Forecast

One Outstanding Year For WDC Stock

WDC shares are up 88.8% from the same day last year, now trading at $85.12. It has been an incredible year of recovery for the company who had reached the low of $35 per share on May 2016 due to a sharp decrease in revenues.

On July 27th, the company released its Q4 earnings report which didn’t disappoint and even exceeded expectations.

More in detail, for fiscal 2017, the company achieved revenues of $19.1 billion, a 46.9% increase from the $13.0 billion of 2016, it posted operating income of $2.0 billion and net income of $397 million which marked an impressive 64% jump from last year net profit. The company produced $3.4 billion in cash from operating activities during 2017 fiscal year and returned to shareholder dividends for $574 million.

Breaking down the Western Digital’s sales by device we see that unit sales remained relatively steady in the consumer electronics and enterprise markets. Shipments of Notebook drive fell by 10% but this was compensated by a 13% increase in desktop sales.

A cost-cutting program reduced Western Digital’s workforce by 7.2% compared to the year-ago count, with a 5% cut and 3,600 positions eliminated only in this fourth quarter.

Good News Will Continue Into 2018  

Looking ahead, management posted the following guidance targets:

  • Revenue are supposed to reach $5.1 billion in the first quarter of fiscal year 2018, accounting for a 8% increase year-over-year jump.
  • Non-GAAP earnings are estimated at around $3.30 per diluted share for the same period, up from $1.18 per share in the first quarter of fiscal year 2017.
  • Full-year adjusted earnings are expected to exceed $12.00 per share which would be at least a 30% increase over the 2017 total.

Management is also optimistic for what concerns synergies as so far they have been delivering according to expectations. The company declared it is on track to realize the $800 million of annualized savings derived from the HGST integration by the end of the year 2017. At the end of the reported quarter, WDC reported $350 million of cost of revenue synergies and $350 million of operating expense synergies each on an annual run-rate basis.

On the other hand, integration with flash memory producer, SanDisk is also on the right path.  The company realized synergies of approximately $200 million on an annual run-rate basis. This is in line with its 18-month target of achieving $500 million of total run-rate synergies on an annualized basis.



WDC Stock Forecast

WDC Long Term Strengths

I believe Western Digital has a few significant long term positives to consider.

The shift towards non-PC applications is definitely one of them as the company will be able to leverage it through SanDisk. Then, there’s the secular growth of digital data together with the increasing exposure to the small and medium business space.

Furthermore, the company’s growing footprint in the automotive as well as the connected home and industrial categories is a significant positive, in my opinion.

Management believes that Western Digital will profit from favorable NAND industry conditions that will persist at least through the first half of calendar year 2018 according to estimates. This will also help in gross margin expansion.

The company’s launch of a string of storage devices under the mobile and cloud segment is also an encouraging aspect although continuous investments in innovation could result in flat margins in the near term.
Further, Western Digital’s entry into the wireless devices market comes at a time when storage services related to smartphones and tablets are witnessing large-scale adoption. These factors are anticipated to be growth catalysts, going forward.
Moreover, the SanDisk acquisition not only expanded Western Digital’s offerings in the SSD segment, but also provided it with s a competitive edge against peers such as Seagate Technology STX.

Why Did WDC Share Drop?

We have seen definitely good numbers, strong performance and positive forward guidance data then how come shares have gone down since the report publication?


WDC Stock Forecast

Stocks were trading at $93 on the 27th and are now down around 8.6% to $85.12. After a run like this year’s, I can see how short-term traders were tempted to take a few of their shares off the table and cash in profits regardless of how good the reported and projected results are.

However, people holding Western Digital stock with a longer time horizon should be perfectly happy with the stock at this point. The company is healthy and much better prepared for the inevitable change in the solid state storage industry than its main competitor Seagate for instance. The San Disk acquisition has made the difference already and it will increase in relevance over the next few years.

A brief look at the company earnings ratios further supports my point and shows that WDC shares might be currently undervalued. P/S ratio equals to 1.3 versus an industry average of 1.67 while the P/E ratio is now equal to 10.76, compared to an industry average 13.93.

After this price drop not supported by fundamentals, it might be just the perfect time to buy.

I Know First Bullish Forecast

Today, August 1st, the algorithm issued a bullish forecast for WDC shares with a signal of 34.70 and a predictability factor of 0.66 for the 3 months period. This is in line with my buy rating and with most Wall Street analysts’ who also see the stock as grossly undervalued. The average target price is indeed equal to $114.7, a 34.4% upside.

Western Digital Stock

I Know First Algorithm Heat-map Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm, allowing the user to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above in order to fill confident about/trust the signal.

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