Western Digital's Production Hiccups Will Be Short-Lived and Don't Alter Our Long-Term View; $70 FVE

We’re maintaining our $70 fair value estimate for no-moat Western Digital after the firm lowered its fiscal third-quarter guidance to account for production disruptions in its flash business. We think that Western’s production disruption, while material, is a short-term dynamic and that the company will be able to counteract some of it with raised pricing. We expect demand to remain high in the short term despite higher pricing, and our long-term thesis for Western to increase flash revenue at a double-digit clip through fiscal 2026 is intact. The shares were flat after the announcement despite new guidance being well below consensus, which we think shows the market agrees with our opinion that this is a short-term hiccup. We continue to think the market is undervaluing the long-term prospects of Western Digital’s flash business, despite its commoditylike nature that results in our no-moat rating. We view the current valuation as an attractive entry point for long-term investors willing to play into a cyclical firm with secular growth tailwinds.