Analyst Note| William Kerwin |
We are raising our fair value estimate for no-moat Western Digital to $65 per share from $53, and upgrading its moat trend rating to stable, based on expectations for sustained demand for enterprise hard disk drives, or HDDs, over the next five years. After 2021, we think demand for mass capacity drives at cloud and enterprise customers will more than offset secular declines in consumer HDDs through 2025, leading to our updated stable trend rating. We forecast both the HDD and flash markets to have strong demand cycles through fiscal 2023, and for Western to generate 6% compound annual sales growth through 2025, through the cycle. At our new valuation, we view shares as fully valued, but would recommend investors look for a greater margin of safety to invest.