Western Digital Earnings: We Like Improving Growth Across HDD and Flash, but Shares Are Overpriced

We maintain our $42 fair value estimate for shares of no-moat Western Digital after its December-quarter results aligned with our longer-term recovery thesis for hard disk drive, or HDD, demand. Western met our sales expectations in the quarter and outperformed on profits, similar to peer Seagate Technology earlier in the week. Western’s HDD and flash businesses both grew sequentially in the quarter, which we see as positive evidence of recovering demand after downturns over the past two years. We expect these trends to continue through calendar 2024. We continue to see shares as overvalued and not supported by our expectations for results going forward, even as we model a robust rebound for the firm over the next two years.