When a business essentially makes one product, it prospers when it makes versions of that product that allow other businesses to use it in many different ways. There is a hard drive maker in Lake Forest, California that has followed that growth formula for nearly forty years. Its products are routinely found in a wide variety of business and consumer electronic devices that need to store and manipulate data.
Western Digital Corporation (NYSE: WDC) designs, develops, manufactures and markets hard drives. Its devices are used for non-volatile data storage by makers of personal computers, servers, network storage systems, video game consoles, digital video recording devices and TV set-top boxes. The firm sells its products worldwide to original equipment manufacturers, distributors and such retailers as Amazon.com (NASDAQ: AMZN), Best Buy (NYSE: BBY), Dell (NASDAQ: DELL), Office Depot (NYSE: ODP), Staples (NASDAQ: SPLS), Target (NYSE: TGT) and Wal-Mart (NYSE: WMT).
The stock price popped early this month, after the company announced it would acquire disk maker Komag Inc. (NASDAQ: KOMG) for about $1 billion. Thomas Weisel noted that the deal "looks like a steal." Needham upped the stock to "strong buy" status ($28 target), remarking that Western Digital had filled the greatest hole in its business model.
WDC shares have since been consolidating the gain in a bullish "pennant" pattern. Prices frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.
Brokers recommend the shares with six "strong buys," seven "buys" and seven "holds." The WDC P/E ratio (10.20), PEG ratio (0.86), Price to Sales ratio (0.91), Price to Book ratio (3.14), Price to Cash Flow ratio (7.12), Price to Free Cash Flow ratio (18.40), Sales Growth rate (24.91%), Return on Assets (20.53%), Return on Investment (35.09%) and Return on Equity (36.71%) compare favorably with industry, sector and S&P 500 averages.
Institutions own about 84% of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past 52 weeks, it has traded between $15.90 and $21.70. A stop-loss of $18.50 looks good here. Note that the firm is expected to report fiscal Q4 results on or about July 26th.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.
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Reader Comments (Page 1 of 1)
7-16-2007 @ 11:50PM
Trent said...
My watch lists got a lucky break on this one.
http://stockmarketbeat.com/blog1/2007/06/29/wdc-komg-a-merger-for-my-watch-list/
That said, though, I have been burned by disk drives often enough to always be wary about them.