After bottoming in December, 2017, Western Digital (NASDAQ: WDC) settled with Toshiba, putting an end to the growth potential for the merged entity. Investors also have the strong second-quarter results to appreciate, after the company beat revenue and EPS estimates.
Western Digital earned $3.95 a share in the second quarter on revenue of $5.34 billion. Non-GAAP earnings topped $3.95 a share compared to the $3.79 consensus. GAAP numbers reflected a massive tax repatriation of foreign cash. The cost should not alarm markets because it has no bearing on operations. The cash repatriation will give Western Digital financial flexibility. It may buyback shares or make strategic investments.
The strong results should narrow the discount between WDC stock and that of Seagate Technology (NASDAQ: STX). The former previously traded at a forward P/E of 7.4 times, compared to 12 times with Seagate. With the revised outlook of Western Digital forecasting earnings of as much as $14 a share, WDC stock trades at a six times P/E.
Takeaway
Western Digital stock could be on its way north of $100 a share. It is too inexpensive for value investors to pass up. Hard disk demand is growing as video security requires storage and cloud solutions need hard disks, too.
