Western Digital(WDC) is one of the largest providers of data storage devices. Unlike their Rival Seagate, Western digital is heavily diversified in everything from Hard drives to solid state drive, as well as enterprise storage products.
Right now the stock is down 33% YTD as part of a broader decline of tech companies, and concerns over semiconductor supply chain issues.
In terms of value, currently, the stock is trading at 52 week lows. WDC is trading at a P/E ratio of 7, a price to sales of 0.75, a price to book of 1.18, and a market cap under 14 Billion. The 10 year low of WDC is $29, suggesting little downside.
In terms of growth, the growing demands of the cloud creates a consistent need for storage. There is tremendous demand, and right now the biggest barrier to growth is supply chain issues. So while WDC is a cyclical company, there is evidence to suggest that demand will remain strong for years as their customers address their supply chain issues.
As interest rates rise in the coming months, companies with excessive debt are at risk. Fortunately, Western Digital has been making tremendous progress in reducing its leverage over the past few years, and has a very healthy balance sheet, with a debt to ebitda ratio of 1.5.
The progress made in paying down debt puts Western digital in a good position to re-instate its dividend or conduct buybacks in the next few years. The dividend was suspended in 2020 to focus on reinvesting in the business and in paying down debt, but would be re-evaluated when the company is below $6 Billion in total debt and $3 Billion in net debt, a target that the company is on track to reach in the next few years.
Disclaimer: I bought a lot of shares of WDC on Friday and today.
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