Western Digital Corp. is weak on financial results

Investment idea by DTI

Exchange: NASDAQ

Sector: Technology

Industry: Data Storage Devices

Entry strategy

Price: $70.00—$75.00

Stop-loss: $90.63

Take profit: $60.00, then $40.00–45.00

Investment horizon: until the end of 2018

Company details

Western Digital Corp. is a developer, manufacturer and provider of data storage devices. Its solutions address the needs of the information technology (IT) industry and the infrastructure that enables the proliferation of data in virtually every industry.

The company’s products are divided into three categories: Datacenter Devices and Solutions, Client Devices, and Client Solutions.

Company financial performance

On 26 April 2018, the company presented the results for the third financial quarter of 2018. Revenue was $5 billion compared to the projected $4.93 billion, but earnings per share (EPS) was $0.20 compared to the $3.30 per share analysts predicted (see Table 1 and Table 2).

Financial summary of Western Digital Corp. performance is presented in Table 1 and Table 2:

Table 1. Financial performance of Western Digital Corp. ($WDC). Source: MarketWatch — Open original image
Table 2. Financial performance of Western Digital Corp. ($WDC) for Q2-4 of 2017 and Q1-2 of 2018. Source: MarketWatch — Open original image

Western Digital Corp. share price is higher than that of competitors. It is indicated by P/E multiplier value of 65.46, which is above an industry average of 17.69. P/S multiplier is almost twice as high as that of similar companies.

At the same time D/E ratio is 115.18 which is much higher than that of industry competitors. Such a high level of leverage can lead to bankruptcy risk if the management of the company doesn’t take actions. The negative impact of the debt is evidenced by the growing interest expenses of the company (see Table 1 and Table 2).

The firm’s ROE, ROI, and ROA indicators are much lower than those of sector competitors. The company doesn’t use its’ assets effectively. The Asset Turnover index is 0.61 against 1.45 for companies-analogues.

The dividend yield of the shares of Western Digital Corp. is less than competitors’ (2.39% against 3.05%), and the effective tax rate of the company is greater than that of the companies-analogues and is 48.37% against 19.80%.

Технический анализ (торговый план)

Graph1. Technical analysis of Western Digital Corp. ($WDC) stock. Source: TradingView — Open original image

Also published on Medium.