The hard drive makers are still wrangling with the aftermath of the Thailand floods. But Western Digital Corporation (WDC) is bouncing back and is still expected to see 78% earnings growth in fiscal 2012. This Zacks #1 Rank (Strong Buy) also is dirt cheap at just 7x forward estimates.
Western Digital manufactures hard drives for electronic devices, including PCs and netbooks.
Second Quarter Revenue Fell But Flood Recovery Continued
On Jan 23, Western Digital reported its second quarter results and saw revenue fall to $2 billion from $2.5 billion a year ago.
The company shipped 28.5 million hard-drive units versus 52.2 million in the second quarter of last year.
Western Digital continues to be impacted by the horrible Thailand floods even though it has made significant additional progress to restore its manufacturing capabilities.
It recently resumed slider production which had been suspended since Oct 10, 2011.
The company set a time table of the end of the quarter ending Sep 2012 to have its manufacturing capacity back to pre-flood levels. Obviously, that is several quarters away so that leaves the company feeling the continued impact from the floods.
Western Digital actually missed on the Zacks Consensus Estimate by 5 cents in the quarter. It was the first miss in five quarters. Earnings per share were 67 cents compared to the consensus of 72 cents. The company made 96 cents in the year ago quarter.
Cash Rich
Western Digital has developed a large cash hoard over the last few years and it continues to add to it every quarter.
It generated another $378 million in cash from operations in the second quarter.
The company had $3.9 billion in cash and cash equivalents as of the end of the quarter. The last time I wrote about Western Digital, nearly 2 years ago in March 2010, the company had “only” $2.4 billion.
Analysts Very Bullish on Fiscal 2012
Despite the earnings miss and the problems associated with the Thailand floods, the analysts are still optimistic about fiscal 2012.
13 out of 14 estimates have been revised higher for fiscal 2012 in the last month, pushing the Zacks Consensus up to $5.57 from $4.14 per share.
That is 78% earnings growth as the company made just $3.13 last year.
Western Digital Is Cheap
Western Digital has been pretty cheap the last few years. Shares were crushed further in the summer sell-off and on fears over the floods.
Since then, the rebound has been dramatic. But shares continue to be cheap.
In addition to a forward P/E of just 7, the company has a price-to-book ratio of 1.5. A P/B under 3.0 usually indicates “value.”
Western Digital also scores well with its the price-to-sales ratio of just 0.97. A P/S under 1.0 can mean a company is undervalued.
Its other fundamentals are also solid, with a 1-year return on equity of 13.1%.
Hard drives might not be the glamorous part of the tech world but with $3.9 billion in cash and a recovery from the floods in the making the next few quarters, Western Digital is an attractive value stock.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at traceyryniec.
