Western Digital: Cyclical Upcycle Is On A Clock While Valuation Remains Expensive

Passage Research 5.93K Followers Follow Summary Western Digital is now a pure-play HDD storage provider post-Sandisk spin-off, with cloud representing 89% of revenue and driving recent explosive growth. I initiate coverage with a Sell rating and a $370 price target, citing concerns over unsustainably high-growth rates and an overextended valuation. Despite 44% revenue growth, 1,310 bps gross margin expansion, and 109% EPS growth, forward guidance and sequential acceleration failed to meet elevated market expectations. With WDC trading at 29.8x forward earnings and a FCF yield just over 2%, I see downside risk as growth normalizes and cyclical pressures reassert. JHVEPhoto/iStock Editorial via Getty Images Western Digital ( WDC ) has been on a transformational journey the last few years. From spinning off Sandisk ( SNDK ) to seeing cloud revenue compound higher on the back of data center growth, there's This article was written by Passage Research 5.93K Followers Follow Passage Research focuses on identifying variant perception through a blend of fundamental analysis and alternative data. The research process combines detailed financial modeling with real-time datasets to underwrite earnings power, margin durability, and forward expectations.The author has spent over a decade on Wall Street, most recently spending the last five years working in the hedge fund industry as an analyst. Typical coverage spans consumer, TMT, industrials and special situations, with an emphasis on asymmetric risk/reward and catalyst-driven opportunities. Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Short position through short-selling of the stock, or purchase of put options or similar derivatives in WDC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.