Lowering Western Digital FVE to $60 as Downcycle Appears Imminent

No-moat Western Digital finished its fiscal fourth quarter largely in line with guidance for top line and non-GAAP bottom line; however, it provided weak guidance for the September quarter that foretells a rough fiscal 2023. We are lowering our fair value estimate to $60 per share, from $70, to incorporate the fiscal 2023 outlook. Western Digital is expecting cyclical weakness across hard drives and flash, and we remind investors that the volatility for these commoditylike products underpins our no-moat rating. Long term, we still doubt Western Digital’s ability to meet its long-term targets, but we do expect a rebound and think it can experience strong midcycle growth from cloud hard disk drives and flash. Long-term investors that remain patient through a cycle may still find upside in Western Digital’s current valuation, but fiscal 2023 appears grim.