Market Insight: Western Digital Showing Tremendous Fundamentals
July 3, 2008
Western Digital (WDC) engages in the design, development, manufacture, and sale of hard disk drives worldwide. Its products include 3.5-inch, 2.5-inch, and 1.0-inch form factor drives. The company’s hard disk drives are used in various applications, including desktop computers; notebook computers; enterprise applications, such as servers, workstations, network attached storage, and storage area networks; and consumer electronics applications, such as digital video recorders, satellite and cable set-top boxes, MP3 players, USB thumb drives, karaoke systems, multi-function printers, and gaming systems.
In addition, the company designs and manufactures magnetic heads and head stack assemblies. The company markets its products under the Western Digital and WD brand names. Western Digital primarily sells its products to original equipment manufacturers for use in computer systems, subsystems, and consumer electronics devices, as well as to distributors, resellers, and retailers. The company was founded in 1970 and is headquartered in Lake Forest, California. Western Digital’s common shares are listed on the New York Stock Exchange [NYSE] under the symbol WDC.
Western Digital has super fundamentals across the board led by expanding operating margins, strong sales growth, terrific cash flow and great return on equity. Drives for personal computers account for most of Western Digital’s sales, although the company also makes devices for entry-level servers and home entertainment products, such as set-top boxes and video game consoles. About half of Western Digital’s sales are to manufacturers.
In its latest quarter, the company’s sales increased 50 percent to $2.11 billion due to strong demand for its disk drives. In that quarter, Western Digital’s earnings rose 132.1 percent to $1.23 per share compared with 53 cents per share in the same quarter a year earlier. The analyst community expected earnings of $1.09 per share on sales of $2.05 billion, so the company posted a 12.8 percent earnings surprise and a 2.9 percent sales surprise.
Technically, the stock has a good profile, projecting a possible move up to the $43 per share area by the September timeframe. Western Digital has a very a liquid options market that offer LEAPS that extend out to January of 2010 allowing the options strategist more than enough time to capitalize on this bullish opportunity.
Figure 1: Elliott Wave-4 Buy Pattern for Western Digital
(Source: Profit Source)
Happy Trading.
Jeff Neal
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
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