Western Digital Recovers from Five-Year Loss, Delivers 73% Total Return Over Last Year (NASDAQ:WDC)

Ned Piplovic

Western Digital

After losing two thirds of its value between late-2014 and the beginning of the trailing 12-month period, Western Digital stock rebounded and combined with the above-average dividend income to deliver a total return of more than 70%.

The share price spiked to its all-time high of nearly $115 in mid-December 2014. However, immediately after peaking in late-2014, the share price gave back all its gains over the previous two years and fell below $36 by mid-2016. While the share price recovered and broke above $100 by March 2018, the uptrend did not last. That share price resurgence overshot a sustainable level and began pulling back immediately. Unfortunately, the downward pressure from the overall market correction in the fourth quarter of 2018 pushed the share price even lower and back towards its five-year low around $36 by the end of that year.

The second 65% share price drop in five years is bad news for the company’s long-term shareholders. However, new investors could use the opportunity to take a long-term position and potentially reap benefits of another share price recovery while collecting above-average dividend income payouts. Will the share price continue its current uptrend? For the answer to that question, investors should monitor to see whether the share price breaks above the current $64.02 resistance level in the next couple of weeks. If that happens, the share price could go on another double-digit-percentage run towards the $100 level.

The share price experienced moderate volatility, which has kept the 50-day moving average below its 200-day equivalent in 2019 until the beginning of August. The 50-day average broke above the 200-day average and has remained higher despite declining slightly because of a share price pullback in November 2019. This pullback dropped the share price below both moving averages by mid-November. However, the share price has been rising in over the past 30 days. The share price broke back above both averages on December 12 and has risen to nearly 10% above 50-day moving average, as well as more than 13% above the 200-day moving average.

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Most of Wall Street analysts’ currently covering the Western Digital stock are confident in the recovery. Compared to November 2019 when only 45% of 33 analysts gave a “Buy” (10) or “Strong Buy” recommendation, currently, more than 75% of 29 analysts recommend a “Buy” (15) or “Strong Buy” (7). The number of analysts recommending a “Hold” dropped by more than a half from 15 last month to only seven in December.

 

Financial Results

After missing analysts’ earnings expectations in fourth-quarter 2018 and first-quarter 2019, Western Digital managed to improve its financial performance and meet earnings expectations for the second quarter of calendar year 2019, which coincides with the end of the company’s fiscal year. On October 30, 2019, Western Digital released positive financial results for the first quarter of its fiscal-year 2020. The company’s revenue of $4.04 billion was lower than the $5.03 billion figure from the same period last year but beat analysts’ expectations by more than 3.5%. Similarly, Western Digital’s $0.34 adjusted earnings per share (EPS) trailed behind last year but beat analysts’ consensus estimates of $0.30 by more than 13%.

In addition to revealing second-quarter revenue outlook between $4.1 billion and $4.3 billion during the results call, the company also announced the upcoming retirement of Steve Milligan, the company’s Chief Executive Officer over the past six years. The CEO retirement news sent the share price 10% lower during the subsequent trading session and the share price  declined for more than 30 days afterwards. However, the share price has fully recovered those losses. Western Digital’s continued innovation, such as the first-ever commercial implementation of energy-assisted magnetic recording technology on a nine-disk platform in the company’s new 20 terabyte and 18 terabyte hard disc drives, could support sustained growth and provide the necessary fuel for continued share price advancement.

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Western Digital

Share Price

After reaching its five-year low in mid-December, the share entered the trailing 12-month period on December 24, 2018, with its 52-week low of $35.06. However, after passing through its 52-week low in late-December, which was only marginally higher than the five year low from May 2016, the share price experienced significant volatility but maintained an overall uptrend.

After gaining nearly 85% above the late-December 52-week low, the share price reached its 52-week high of $64.70 on September 12, 2019. Since surging to its mid-September peak, the share price pulled back slightly and closed on December 20, 2019, at $58.77. While more than 9% below the 52-week high, the Dec. 20 share price was still 67.6% higher than its 52-week low from one year earlier.

In addition to delivering oversized asset appreciation, Western Digital also rewarded its shareholders with an above-average dividend income yield of 3.4%. Capital gains and dividend distributions combined for a total return of 73% over the past 12 months, which is a promising result after total losses of 3% and 37% over the past three and five years, respectively. Furthermore, by 1 p.m. on Dec. 23, the share price was trading around $62.60, which was a gain of almost 4% above the $58.77 closing price from the end of the previous week.

 

Western Digital Corporation (NASDAQ:WDC)

Based in San Jose, California, and founded in 1970, the Western Digital Corporation develops, manufactures and sells data storage devices and solutions worldwide. The company offers client devices, including hard disk drives (HDDs) and solid state drives (SSDs) for computing devices. Furthermore, the company’s product portfolio includes flash-based embedded storage products for mobile phones, tablets, notebook personal computers and other portable devices. Moreover, Western Digital also offers hardware and applications for industrial, automotive, connected home and Internet of Things applications.

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The company also provides data center devices and solutions comprising enterprise helium hard drives, enterprise flash-based SSDs and software solutions for use in servers, online transactions, data analysis, data center solutions and other enterprise applications. Also, Western Digital offers client solutions and removable cards used in consumer devices, including mobile phones, tablets, imaging systems, still and action video cameras, security surveillance systems, universal serial bus flash drives and wireless drive products. The company sells its products under the G-Technology, Upthere, SanDisk and Western Digital brands to original equipment manufacturers, distributors, resellers, cloud infrastructure players and retailers.

 


Ned-Piplovic

 

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.

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