Western Digital Earnings: Excellent Profitability Lifts Our Valuation

We increase our fair value estimate for no-moat Western Digital to $51 per share from $42, as we raise our profitability expectations during our forecast for the firm’s multiyear rebound. Both hard disk drive, or HDD, and solid-state drive, or SSD, businesses grew sequentially, with improvements in nearline HDD shipments and flash. Western’s profitability was nothing short of impressive in the quarter, and is now already back to what we consider midcycle levels, well before our expectations. We now expect higher profitability in the coming quarters along with strong revenue growth as the firm recovers from the steep market downturn in 2023. We continue to view shares as overvalued, however, as we consider longer-term cyclicality for Western’s commodity products.