Western Digital (WDC, Financial) is seeing strength in its HDD and flash platforms, mobile and cloud segment. Also, the recent shift towards non-PC applications, material growth of digital data and increased exposure to small and medium businesses demonstrate strong growth prospects for the company in the future.
A look at the prospects
Western is seeing strong adoption for its high capacity hard drives. These high capacity hard drives are established on its proprietary HelioSeal platform. The legacy enterprise and hyperscale data center customers are buying more of these hard drives. Also, the company has recently launched its new 8 terabyte and 10 terabyte models that started gaining traction in the markets. These new launches should certainly enhance its product portfolio in high capacity hard drives.
Moreover, Western has recently shipped its one millionth WD purple hard drives architected. This should help the company to earn extra market share in the high-growth space security surveillance video applications. Also, growing utilization of video and digital network cameras from government and large organizations are requiring an enormous need of a high resolution recording. This trend should positively earn profit for the company this fiscal year.
New products will be catalysts
The company has recently launched a new wireless drives, an addition to its My Passport portfolio of products. The wireless drive allows eight devices to simultaneously connect to it without the use of network hubs or routers. This feature sets the drive apart from personal cloud drives, and is targeted to accommodate connectivity needs of small teams and even families. This new addition should assist the company to capture additional share in the wireless storage market.
In addition, its flash platform looks pretty exciting with the restart of its flash platform solutions. It produced revenue of approximately $156 million in the last reported quarter. Additionally, its flash related products are expected to beat industry growth rate over the years. The company expects its flash platform solutions to yield accretive profit for the business this calendar year.
Furthermore it should benefit from its new launched offerings such as ‘Active Achieve’ from its newly formed Elastic Storage Group. Also, it is making significant progress in its personal cloud platform. It has recently expanded its my Cloud business with expansion in all geographies addressing consumer and prosumer markets. Western is observing higher demand for its client and branded products this holiday season. Also, the strong demand for its enterprise segment should support its top line growth this quarter.
Soft guidance
Western expects its revenue to be in the range of $3.75 billion to $3.85 billion for the second-quarter 2015. Also, its earnings are expected to range between $2.00 per share and $2.10 per share for the quarter. The analyst had been modelling earnings of $2.22 per share on the revenue of $3.91 billion for the quarter.
Conclusion
Western looks like a good bet. It sees strong demand for its HDD and flash platforms that should enhance its growth in the long-run. The analyst have estimated CAGR of $6.67% for the next five years that indicate slow but steady growth for the stock. The stock is currently trading at the trailing P/E of 16.23 and forward P/E of 11.5 that share cheap valuations for the stock. It has profit and operating profit margins of 10.12% and 12.21% respectively for past twelve months. Its balance sheet carries total cash of $5.38 billion, quite enough to cover its total debt of $2.41 billion. It has operating cash flow of $2.96 billion and free cash flow of $1.77 billion.
