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Is Western Digital Trading at Cheaper Valuations after Steep Fall?

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Oct. 26 2018, Updated 10:10 a.m. ET

PE ratio

Western Digital’s (WDC) revenue is expected to fall 1.9% in fiscal 2019 and then rise 1.2% in fiscal 2020. Revenue is estimated to rise 1.6% in fiscal 2021 as well. The company’s EPS are expected to fall 23% in fiscal 2019 and rise 2.3% in fiscal 2020.

Analysts expect WDC’s sales to decline at a CAGR (compound annual growth rate) of 1.3% over the next five years. When we compare this figure with the company’s forward PE ratio of 8.80x for fiscal 2019 and 8.09x for fiscal 2020, the stock looks undervalued. WDC has a dividend yield of 3.7%.

The PE ratios of Micron (MU), Seagate (STX), Applied Materials (AMAT), and NetApp (NTAP) in the current year stand at 3.57x, 7.42x, 9.92x, and 19.3x, respectively.

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Revenue growth for Micron, Seagate, Applied Materials, and NetApp in their current years stands at 1.3%, 4.5%, 19%, and 6.6%, respectively. While Micron’s EPS are expected to fall 12% this year, earnings for Seagate, Applied Materials, and NetApp are expected to rise 12%, 37%, and 27%, respectively.

Analysts’ recommendations

Of the 29 analysts tracking WDC, 22 have recommended “buys,” and seven have recommended “holds.” Analysts’ 12-month average price target for WDC is $97.42, and the median estimate is $98. WDC is trading at a discount of 108% to analysts’ median estimate.

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