Western Digital Earnings: HDD and Flash Downturns Have Yet to Trough; Maintain $42 FVE

We maintain our $42 fair value estimate for Western Digital shares after the firm’s fiscal third-quarter results met our expectations. Western Digital’s sales and profits are suffering from simultaneous downturns for its hard disk drive, or HDD, and flash businesses. The firm’s current downcycle appears set to endure longer than management had initially expected, which aligns with peer Seagate’s commentary from its own earnings release a few weeks ago. We continue to anticipate a recovery beginning in fiscal 2024, but are pushing out a meaningful rebound for a couple quarters from now in our forecast. Sharp downturns like the current one for Western Digital reflect its vulnerability to market dynamics and lack of an economic moat, in our view. Shares are undervalued, but we recommend investors seek moatier names amid current turmoil.