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Western Digital Rises More Than 4%: Can the Rally Continue?

Western Digital Corp.’s WDC shares have climbed 4.1% in yesterday’s trading session, outperforming the market.

Western Digital stock has gained 29.4% in the last three months, outperforming the 25.3% rally of the industry it belongs to.

Will the recent positive trend continue driving the stock over the long haul or is it due for a pullback? Before we discuss how investors and analysts have reacted as of late, let's take a quick look at the fundamentals and trends in order to get a better hold on the important drivers.

Growth Drivers

Western Digital delivered second-quarter fiscal 2018 non-GAAP earnings of $3.95 per share, which beat the Zacks Consensus Estimate by 14 cents and soared 71.7% from the year-ago quarter.

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Revenues increased 9.2% year over year to $5.34 billion and surpassed the Zacks Consensus Estimate of $5.29 billion. The strong top-line growth reflected healthy demand in the company’s end-markets for high capacity enterprise hard drives and flash-based products.

Western Digital has started deploying 64-layer 3D technology across its product portfolio and the ramp of the 96-layer technology is expected in the later part of 2018. The company MAMR-based capacity enterprise hard drives are anticipated to be available for sampling in the second half of 2018.

Product Rollouts

Western Digital recently unveiled two new NVMe (Non-Volatile Memory Express) SSDs namely Western Digital PC SN720 and Western Digital PC SN520. This addresses the need of storage system that enables the fast data applications and new technologies.

With such launches, we expect Western Digital to strengthen market position against the likes of Seagate Technology.

According to Cisco GCI estimates, the machine, people and other things will require about 850 zettabytes (ZB) of storage by 2021. The growing demand requires a new storage standard and easy accessibility. We believe that the latest Western Digital’s NVMe client architecture and product portfolio will benefit from pent up demand in the storage market.

These product additions will enhance the company’s existing product portfolio. It will also aid Western Digital in getting a strong foothold in the global SSD market, which per latest data by TechNavio is expected to witness CAGR of 17% during 2016-2020.

Western Digital also unveiled the world’s fastest UHS-I microSD card and PCIe-enabled flash memory card technology, the 400GB SanDisk Extreme UHS-I micro SDXC card at MWC. It will enable users to better capture, preserve, access, share, transform and enjoy their personal content.

Joint Venture on Track

In Dec, 2017, Western Digital settled its dispute with long-time joint venture (JV) partner, Toshiba, over the divestiture of Toshiba Memory Corporation to a consortium led by Bain Capital. The company gave consent to the transfer of Toshiba’s equity interests in the JVs to TMC.

The settlement now ensures long-term availability of NAND supply for Western Digital.

Western Digital also announced that it will participate in the development of Fab 6 starting with the second investment tranche. Fab 6 operations are expected to commence in the next few months with initial bit output in the third calendar quarter of 2018.

The company also expects to participate in the new wafer fab scheduled to be constructed in Iwate.

Upward Estimate Revisions

In the last 60 days, the Zacks Consensus Estimate for Western Digital's current quarter and current year witnessed upward revisions. For the current quarter, the Zacks Consensus Estimate is currently pegged at $3.27 per share, up from earnings of $3.11 per share earlier. Similarly, the Zacks Consensus Estimate for current year is currently pegged at $13.97 per share compared with $13.47 projected 60 days ago.

Style Scores Look Great

Western Digitalcurrently sports an A grade for Growth and Value, lifting its overall VGM Score to A.

Positive Earnings Surprise History

Western Digitalhas an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in the trailing four quarters, delivering a positive average earnings surprise of 6.43%.

Further, it has a long-term expected EPS growth rate of 19%.

To Conclude

In our opinion, the stock deserves a place in investor’s portfolio and we are expecting an impressive return from the stock in the next few months.

Currently, the stock carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Applied Materials, Inc. AMAT, NVIDIA Corporation NVDA and DXC Technology Company DXC. Applied Materials and DXC Technology carry a Zacks Rank #2 (Buy), while NVIDIA sports a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials, NVIDIA and DXC Technology have a long-term expected EPS growth rate of 12 %, 10.3% and 10.5%, respectively.

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Western Digital Corporation (WDC) : Free Stock Analysis Report
 
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