CA - Western Digital: A Market Reality Check Of Management's Optimism

2024-02-12 21:18:11 ET

Summary

• Western Digital's Q2 2024 results slightly surpassed expectations, with improved gross margins in both segments.
• While the management highlights these positive results, I am skeptical of the near-term performance of the company.
• There are many challenges the company has to face, including but not limited to a struggling Chinese economy, weak end markets, and other known unknowns.
• Combined with a valuation that does not appear cheap, I reiterate a "Hold" rating for Western Digital.

Introduction

Five months after my initial coverage of Western Digital Corporation ( WDC ), I remain skeptical that it is a buying opportunity.

The company has recently reported earnings that slightly surpassed the consensus for revenue and EPS. Two out of its three customer segments experienced sales growth, with the third remaining flat. Management specifically highlighted the increasing gross margins of the company’s segments, mentioning that another high growth period might be imminent....

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