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Valuation Multiples of Western Digital and Its Peers

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Oct. 19 2018, Updated 10:31 a.m. ET

Low forward price-to-earnings ratios

Western Digital’s (WDC) stock price has declined significantly since March, driven by concerns over falling memory chip prices and the tariff war. This trend has made Western Digital and other semiconductor stocks cheaper.

WDC has a forward PE (price-to-earnings) ratio of 8.96x for fiscal 2019, and its estimated PE ratio for fiscal 2020 is 8.18x. The forward PE ratios for Intel (INTC), Micron Technology (MU), Seagate Technology (STX), and Applied Materials (AMAT) are 11.2x, 4.07x, 7.7x, and 10.6x, respectively, in the current fiscal year.

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Market cap and enterprise value

Western Digital’s (WDC) market-cap-to-revenue multiple is expected to reach 0.80x for fiscal 2019 and 0.79x for fiscal 2020. WDC has estimated EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiples of 3.23x and 3.46x, respectively, for fiscal 2019 and fiscal 2020.

The market-cap-to-revenue multiples for Intel, Micron Technology, Seagate Technology, and Applied Materials are expected to reach 3.04x, 1.59x, 1.09x, and 1.99x, respectively. Applied Materials, Intel, Micron Technology, and Seagate Technology have estimated EV-to-EBITDA multiples of 6.54x, 7.58x, 2.16x, and 5.79x, respectively, in their current fiscal years.

Western Digital is trading relatively cheaper than its peers. Are the company’s respective price-to-earnings ratios of 8.96x and 8.18x in fiscal 2019 and fiscal 2010 expensive considering its revenue growth of -1.8% and 1.3% in those fiscal years? In our view, this could be the case, as WDC is also struggling with earnings growth in a weak macro environment.

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