Western Digital’s returns
Shares of semiconductor company Western Digital (WDC) fell 6.3% on May 13 to close trading at $42.99. WDC has fallen close to 16% since the start of May. Its stock is currently trading 27% above its 52-week low of $33.83 and 51% below its 52-week high of $88.62. The stock has still gained 18% this year despite losing 6.3% on May 13.
Semiconductor stocks such as Western Digital have significant exposure to China. WDC generates over 21% of its sales from China (FXI), which is its biggest region in terms of sales. The stock is expected to remain volatile until the trade war issue is settled.
Trade war concerns coupled with industry weakness caused WDC to fall a whopping 55% in 2018.
Is WDC stock attractive at its current valuation?
WDC has a forward 2019 PE multiple of 11x. In comparison, WDC’s EPS are expected to fall 67% in 2019. The company’s PE multiple for 2020 is 8.7x, and its EPS are expected to fall 19.5% in the year.
Analysts expect WDC’s EPS to fall at a compound annual growth rate of 14% over the next five years. WDC stock seems overvalued despite its loss of 59% of its market value since March 2018.
Wall Street estimates
Of the 29 analysts tracking Western Digital stock, 22 have given it “buys,” seven have given it “holds,” and none have given it “sells.” The average 12-month target price for Western Digital is $57.09, indicating that its stock is trading at a discount of 33% to analysts’ average estimate.