Western Digital takes off

Manivest has been a long time investor in Western Digital (WDC). In general we have a strong interest in mature technology companies that have a “connection” to the Cloud. Western Digital was founded in 1970, and is today the world leader in storage products and solutions with almost 40% of the global hard drive market. With the acquisition of SanDisk in 2016, it gains important technology as the market is moving from classical hard drives to Solid State Drives (SSD).

Even though the PC market has been declining for years, the Cloud is the biggest growth-driver for the company delivering storage solutions and drives to datacenters. The declining PC market has had a negative impact on revenues since 2014, but with the acquisition of SanDisk, Western Digital is set for a revenue growth next year of around 35%. This is not organical growth, but looking at the fundamentals of both the acquisition and the obvious synergies of the merger, we believe Western Digital has a significant potential in 2017.

The company recently published Q1 2017 results – the first quarter with combined results from WDC and SanDisk. Revenues were up 38% year over year, and even though this quarter included charges related to the acquisition and the company hence reported a net loss of 366 million USD, the result stripped from those costs was a postive 341 million USD or 1.18 USD EPS.

The company beat market expectations, and the stock went from trading around 53 USD a share in the week before the earnings release to around 60 USD a share on friday October 28th. Manivest took a calculated risk and bought a significant extra stake in the company around 54 USD a share, and this resulted in a year to date performance boost of more than 10% for the fund. Year to date performance grew to a staggering 45.69% at the end of trading friday. We keep a significant stake in WDC, and believe the company has a very good long term outlook. We believe the company will deliver above 30% revenue growth in 2017, and EPS around 4.7 USD growing to around 7 USD in 2018 if all synergies are well exploited and the market keeps stable (no further decline in PC market and growing Cloud related business). If we translate these numbers into a potential share price development, we believe WDC has a short term potential of 75 USD per share and a long term (end 2018) target above 100 USD per share. Manivest keeps a significant stake in WDC, and it is currently our single largest investment.

Below the chart for WDC since 2013 including 50 and 200 day moving averages.



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