Intrinsic value of Western Digital - WDC

Previous Close

$85.85

  Intrinsic Value

$50.11

stock screener

  Rating & Target

sell

-42%

  Value-price divergence*

-109%

Previous close

$85.85

 
Intrinsic value

$50.11

 
Up/down potential

-42%

 
Rating

sell

 
Value-price divergence*

-109%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of WDC stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 25.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -10.83
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  12,994
  13,254
  13,559
  13,907
  14,298
  14,732
  15,207
  15,725
  16,286
  16,890
  17,538
  18,232
  18,972
  19,759
  20,597
  21,485
  22,427
  23,423
  24,477
  25,591
  26,767
  28,008
  29,316
  30,695
  32,148
  33,679
  35,290
  36,986
  38,771
  40,649
  42,624
Variable operating expenses, $m
 
  3,612
  3,672
  3,741
  3,818
  3,903
  3,997
  4,100
  4,210
  4,330
  4,457
  3,599
  3,745
  3,901
  4,066
  4,242
  4,427
  4,624
  4,832
  5,052
  5,284
  5,529
  5,788
  6,060
  6,347
  6,649
  6,967
  7,302
  7,654
  8,025
  8,415
Fixed operating expenses, $m
 
  9,416
  9,651
  9,892
  10,140
  10,393
  10,653
  10,919
  11,192
  11,472
  11,759
  12,053
  12,354
  12,663
  12,980
  13,304
  13,637
  13,978
  14,327
  14,685
  15,052
  15,429
  15,814
  16,210
  16,615
  17,030
  17,456
  17,892
  18,340
  18,798
  19,268
Total operating expenses, $m
  12,528
  13,028
  13,323
  13,633
  13,958
  14,296
  14,650
  15,019
  15,402
  15,802
  16,216
  15,652
  16,099
  16,564
  17,046
  17,546
  18,064
  18,602
  19,159
  19,737
  20,336
  20,958
  21,602
  22,270
  22,962
  23,679
  24,423
  25,194
  25,994
  26,823
  27,683
Operating income, $m
  466
  227
  236
  274
  341
  435
  557
  707
  884
  1,088
  1,322
  2,580
  2,872
  3,196
  3,551
  3,940
  4,363
  4,822
  5,318
  5,854
  6,430
  7,050
  7,714
  8,426
  9,187
  10,000
  10,867
  11,792
  12,777
  13,826
  14,941
EBITDA, $m
  1,620
  1,791
  1,813
  1,866
  1,950
  2,063
  2,205
  2,377
  2,578
  2,809
  3,070
  3,362
  3,686
  4,044
  4,435
  4,862
  5,325
  5,827
  6,369
  6,952
  7,579
  8,252
  8,973
  9,743
  10,567
  11,445
  12,382
  13,380
  14,442
  15,571
  16,771
Interest expense (income), $m
  113
  478
  492
  507
  524
  543
  565
  588
  614
  642
  672
  704
  738
  775
  814
  855
  900
  946
  996
  1,048
  1,103
  1,161
  1,223
  1,288
  1,356
  1,428
  1,504
  1,584
  1,668
  1,756
  1,849
Earnings before tax, $m
  153
  -252
  -256
  -232
  -183
  -108
  -8
  118
  269
  447
  650
  1,876
  2,134
  2,421
  2,737
  3,084
  3,463
  3,875
  4,323
  4,806
  5,327
  5,889
  6,491
  7,138
  7,831
  8,572
  9,363
  10,208
  11,110
  12,070
  13,092
Tax expense, $m
  -89
  0
  0
  0
  0
  0
  0
  32
  73
  121
  176
  506
  576
  654
  739
  833
  935
  1,046
  1,167
  1,298
  1,438
  1,590
  1,753
  1,927
  2,114
  2,314
  2,528
  2,756
  3,000
  3,259
  3,535
Net income, $m
  242
  -252
  -256
  -232
  -183
  -108
  -8
  86
  197
  326
  475
  1,369
  1,558
  1,767
  1,998
  2,251
  2,528
  2,829
  3,155
  3,508
  3,889
  4,299
  4,739
  5,211
  5,717
  6,257
  6,835
  7,452
  8,110
  8,811
  9,557

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8,378
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  32,862
  26,508
  27,117
  27,814
  28,597
  29,464
  30,415
  31,451
  32,572
  33,780
  35,076
  36,463
  37,943
  39,519
  41,194
  42,970
  44,854
  46,847
  48,955
  51,182
  53,534
  56,015
  58,632
  61,391
  64,297
  67,358
  70,581
  73,973
  77,543
  81,298
  85,248
Adjusted assets (=assets-cash), $m
  24,484
  26,508
  27,117
  27,814
  28,597
  29,464
  30,415
  31,451
  32,572
  33,780
  35,076
  36,463
  37,943
  39,519
  41,194
  42,970
  44,854
  46,847
  48,955
  51,182
  53,534
  56,015
  58,632
  61,391
  64,297
  67,358
  70,581
  73,973
  77,543
  81,298
  85,248
Revenue / Adjusted assets
  0.531
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
Average production assets, $m
  5,917
  6,031
  6,169
  6,328
  6,506
  6,703
  6,919
  7,155
  7,410
  7,685
  7,980
  8,295
  8,632
  8,991
  9,372
  9,776
  10,204
  10,658
  11,137
  11,644
  12,179
  12,743
  13,339
  13,966
  14,628
  15,324
  16,057
  16,829
  17,641
  18,495
  19,394
Working capital, $m
  5,635
  596
  610
  626
  643
  663
  684
  708
  733
  760
  789
  820
  854
  889
  927
  967
  1,009
  1,054
  1,101
  1,152
  1,205
  1,260
  1,319
  1,381
  1,447
  1,516
  1,588
  1,664
  1,745
  1,829
  1,918
Total debt, $m
  16,994
  14,044
  14,476
  14,970
  15,524
  16,137
  16,811
  17,544
  18,338
  19,193
  20,111
  21,093
  22,141
  23,256
  24,442
  25,700
  27,033
  28,445
  29,937
  31,514
  33,179
  34,936
  36,789
  38,742
  40,799
  42,966
  45,248
  47,650
  50,177
  52,836
  55,633
Total liabilities, $m
  21,717
  18,767
  19,199
  19,693
  20,247
  20,860
  21,534
  22,267
  23,061
  23,916
  24,834
  25,816
  26,864
  27,979
  29,165
  30,423
  31,756
  33,168
  34,660
  36,237
  37,902
  39,659
  41,512
  43,465
  45,522
  47,689
  49,971
  52,373
  54,900
  57,559
  60,356
Total equity, $m
  11,145
  7,740
  7,918
  8,122
  8,350
  8,603
  8,881
  9,184
  9,511
  9,864
  10,242
  10,647
  11,079
  11,540
  12,029
  12,547
  13,097
  13,679
  14,295
  14,945
  15,632
  16,356
  17,121
  17,926
  18,775
  19,668
  20,610
  21,600
  22,642
  23,739
  24,892
Total liabilities and equity, $m
  32,862
  26,507
  27,117
  27,815
  28,597
  29,463
  30,415
  31,451
  32,572
  33,780
  35,076
  36,463
  37,943
  39,519
  41,194
  42,970
  44,853
  46,847
  48,955
  51,182
  53,534
  56,015
  58,633
  61,391
  64,297
  67,357
  70,581
  73,973
  77,542
  81,298
  85,248
Debt-to-equity ratio
  1.525
  1.810
  1.830
  1.840
  1.860
  1.880
  1.890
  1.910
  1.930
  1.950
  1.960
  1.980
  2.000
  2.020
  2.030
  2.050
  2.060
  2.080
  2.090
  2.110
  2.120
  2.140
  2.150
  2.160
  2.170
  2.180
  2.200
  2.210
  2.220
  2.230
  2.230
Adjusted equity ratio
  0.235
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  242
  -252
  -256
  -232
  -183
  -108
  -8
  86
  197
  326
  475
  1,369
  1,558
  1,767
  1,998
  2,251
  2,528
  2,829
  3,155
  3,508
  3,889
  4,299
  4,739
  5,211
  5,717
  6,257
  6,835
  7,452
  8,110
  8,811
  9,557
Depreciation, amort., depletion, $m
  1,154
  1,564
  1,577
  1,592
  1,609
  1,627
  1,648
  1,670
  1,694
  1,720
  1,748
  783
  814
  848
  884
  922
  963
  1,005
  1,051
  1,098
  1,149
  1,202
  1,258
  1,318
  1,380
  1,446
  1,515
  1,588
  1,664
  1,745
  1,830
Funds from operations, $m
  2,360
  1,312
  1,321
  1,360
  1,426
  1,519
  1,640
  1,756
  1,891
  2,046
  2,223
  2,152
  2,372
  2,615
  2,882
  3,174
  3,491
  3,835
  4,206
  4,607
  5,038
  5,501
  5,997
  6,528
  7,096
  7,703
  8,350
  9,040
  9,774
  10,556
  11,387
Change in working capital, $m
  377
  12
  14
  16
  18
  20
  21
  23
  25
  27
  29
  31
  33
  35
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  65
  69
  73
  76
  80
  84
  89
Cash from operations, $m
  1,983
  1,301
  1,308
  1,344
  1,408
  1,500
  1,619
  1,733
  1,866
  2,019
  2,193
  2,121
  2,339
  2,580
  2,844
  3,134
  3,448
  3,790
  4,159
  4,557
  4,985
  5,445
  5,938
  6,466
  7,031
  7,634
  8,278
  8,963
  9,694
  10,471
  11,298
Maintenance CAPEX, $m
  0
  -558
  -569
  -582
  -597
  -614
  -632
  -653
  -675
  -699
  -725
  -753
  -783
  -814
  -848
  -884
  -922
  -963
  -1,005
  -1,051
  -1,098
  -1,149
  -1,202
  -1,258
  -1,318
  -1,380
  -1,446
  -1,515
  -1,588
  -1,664
  -1,745
New CAPEX, $m
  -584
  -114
  -139
  -159
  -178
  -197
  -216
  -236
  -255
  -275
  -295
  -316
  -337
  -358
  -381
  -404
  -428
  -453
  -480
  -507
  -535
  -565
  -595
  -628
  -661
  -696
  -733
  -772
  -812
  -854
  -899
Cash from investing activities, $m
  -9,608
  -672
  -708
  -741
  -775
  -811
  -848
  -889
  -930
  -974
  -1,020
  -1,069
  -1,120
  -1,172
  -1,229
  -1,288
  -1,350
  -1,416
  -1,485
  -1,558
  -1,633
  -1,714
  -1,797
  -1,886
  -1,979
  -2,076
  -2,179
  -2,287
  -2,400
  -2,518
  -2,644
Free cash flow, $m
  -7,625
  629
  600
  603
  633
  689
  770
  845
  936
  1,045
  1,173
  1,052
  1,220
  1,407
  1,615
  1,845
  2,098
  2,374
  2,674
  2,999
  3,351
  3,732
  4,141
  4,580
  5,052
  5,558
  6,099
  6,677
  7,294
  7,953
  8,654
Issuance/(repayment) of debt, $m
  11,929
  384
  432
  493
  554
  614
  673
  733
  794
  855
  918
  982
  1,048
  1,116
  1,186
  1,258
  1,333
  1,411
  1,492
  1,577
  1,665
  1,757
  1,853
  1,953
  2,058
  2,167
  2,282
  2,402
  2,527
  2,659
  2,797
Issuance/(repurchase) of shares, $m
  466
  409
  434
  436
  412
  361
  285
  216
  131
  27
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  11,215
  793
  866
  929
  966
  975
  958
  949
  925
  882
  918
  982
  1,048
  1,116
  1,186
  1,258
  1,333
  1,411
  1,492
  1,577
  1,665
  1,757
  1,853
  1,953
  2,058
  2,167
  2,282
  2,402
  2,527
  2,659
  2,797
Total cash flow (excl. dividends), $m
  3,591
  1,423
  1,465
  1,533
  1,599
  1,664
  1,729
  1,794
  1,860
  1,927
  2,091
  2,034
  2,267
  2,523
  2,801
  3,103
  3,431
  3,785
  4,166
  4,576
  5,016
  5,488
  5,993
  6,533
  7,110
  7,725
  8,381
  9,079
  9,821
  10,611
  11,451
Retained Cash Flow (-), $m
  -1,926
  -409
  -434
  -436
  -412
  -361
  -285
  -302
  -327
  -353
  -379
  -405
  -432
  -460
  -489
  -519
  -550
  -582
  -616
  -650
  -687
  -725
  -764
  -805
  -849
  -894
  -941
  -991
  -1,042
  -1,097
  -1,153
Prev. year cash balance distribution, $m
 
  3,563
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  4,576
  1,032
  1,097
  1,187
  1,303
  1,444
  1,492
  1,533
  1,574
  1,713
  1,629
  1,835
  2,062
  2,312
  2,585
  2,881
  3,203
  3,551
  3,926
  4,330
  4,764
  5,229
  5,728
  6,261
  6,831
  7,439
  8,088
  8,779
  9,515
  10,297
Discount rate, %
 
  6.60
  6.93
  7.28
  7.64
  8.02
  8.42
  8.84
  9.29
  9.75
  10.24
  10.75
  11.29
  11.85
  12.45
  13.07
  13.72
  14.41
  15.13
  15.88
  16.68
  17.51
  18.39
  19.31
  20.27
  21.29
  22.35
  23.47
  24.64
  25.87
  27.17
PV of cash for distribution, $m
 
  4,293
  902
  888
  884
  886
  889
  824
  753
  681
  646
  530
  508
  481
  448
  410
  368
  325
  281
  239
  198
  161
  128
  99
  75
  55
  39
  27
  18
  12
  8
Current shareholders' claim on cash, %
  100
  97.6
  95.3
  93.0
  90.9
  89.2
  87.9
  87.0
  86.4
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3
  86.3

Western Digital Corporation, together with its subsidiaries, develops, manufactures, and sells data storage devices and solutions worldwide. It offers performance hard disk drives (HDDs) that are used in enterprise servers, data analysis, and other enterprise applications; capacity HDDs and drive configurations for use in data storage systems and tiered storage models, as well as for use in storage of data for years; and enterprise solid state drives (SSDs), including NAND-flash SSDs and software solutions that are designed to enhance the performance in various enterprise workload environments. The company also provides InfiniFlash System, a system solution that offers petabyte scalable capacity with performance metrics; higher value data storage platforms and systems; datacenter software and systems; and HDDs and SSDs for desktop PCs, notebook PCs, gaming consoles, set top boxes, security surveillance systems, and other computing devices. In addition, it offers embedded NAND-flash storage products, including custom embedded solutions; and iNAND embedded flash products, such as multi-chip package solutions that combine NAND and mobile dynamic random-access memory in an integrated package for mobile phones, tablets, notebook PCs, and other portable and wearable devices, as well as in automotive and connected home applications, and NAND-flash wafers. Further, it provides HDDs embedded into WD- and HGST-branded external storage products; and NAND-flash products, which include cards, universal serial bus flash drives, and wireless drives. Additionally, the company licenses its technologies. The company sells its products under the HGST, SanDisk, and WD brands to original equipment manufacturers (OEMs), distributors, resellers, cloud infrastructure players, and retailers. It serves storage subsystem suppliers, OEMs, Internet and social media infrastructure players, and PC and Mac OEMs. The company was founded in 1970 and is headquartered in Irvine, California.

FINANCIAL RATIOS  of  Western Digital (WDC)

Valuation Ratios
P/E Ratio 100.7
Price to Sales 1.9
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 12.3
Price to Free Cash Flow 17.4
Growth Rates
Sales Growth Rate -10.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -4.6%
Cap. Spend. - 3 Yr. Gr. Rate -9.3%
Financial Strength
Quick Ratio 3
Current Ratio 0.1
LT Debt to Equity 122.6%
Total Debt to Equity 152.5%
Interest Coverage 2
Management Effectiveness
Return On Assets 1.8%
Ret/ On Assets - 3 Yr. Avg. 7.6%
Return On Total Capital 1.2%
Ret/ On T. Cap. - 3 Yr. Avg. 9.7%
Return On Equity 2.4%
Return On Equity - 3 Yr. Avg. 12.6%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 26.4%
Gross Margin - 3 Yr. Avg. 28.1%
EBITDA Margin 10.9%
EBITDA Margin - 3 Yr. Avg. 16.6%
Operating Margin 3.6%
Oper. Margin - 3 Yr. Avg. 8.8%
Pre-Tax Margin 1.2%
Pre-Tax Margin - 3 Yr. Avg. 7.9%
Net Profit Margin 1.9%
Net Profit Margin - 3 Yr. Avg. 7.5%
Effective Tax Rate -58.2%
Eff/ Tax Rate - 3 Yr. Avg. -14.5%
Payout Ratio 191.7%

WDC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WDC stock intrinsic value calculation we used $12994 million for the last fiscal year's total revenue generated by Western Digital. The default revenue input number comes from 2016 income statement of Western Digital. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our WDC stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 6.6%, whose default value for WDC is calculated based on our internal credit rating of Western Digital, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Western Digital.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of WDC stock the variable cost ratio is equal to 27.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $9186 million in the base year in the intrinsic value calculation for WDC stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Western Digital.

Corporate tax rate of 27% is the nominal tax rate for Western Digital. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the WDC stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for WDC are equal to 45.5%.

Life of production assets of 10.6 years is the average useful life of capital assets used in Western Digital operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for WDC is equal to 4.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $11145 million for Western Digital - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 290.986 million for Western Digital is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Western Digital at the current share price and the inputted number of shares is $25.0 billion.

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COMPANY NEWS

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▶ [$$] Toshiba Revives Talks With Foxconn Over Chip Unit   [07:50AM  The Wall Street Journal]
▶ Toshiba: Western Digital Has No Rights to Chips   [Aug-05-17 01:01PM  Fortune]
▶ Time to sell tech? 8 ways to play it   [05:00PM  CNBC Videos]
▶ How Seagate Technology plc Stock Fell 15% in July   [Aug-01-17 01:28PM  Motley Fool]
▶ 'Toshiba is in a very delicate state'   [12:17AM  CNBC Videos]
▶ Western Digital Earnings Beat, Revenue Is A Match   [05:24PM  Investor's Business Daily]
▶ Western Digital tops Street 4Q forecasts   [05:00PM  Associated Press]
▶ Seagate Technology Shares Tumble On Earnings Shortfall   [Jul-25-17 04:30PM  Investor's Business Daily]
▶ Toshiba is again blocking Western Digital from its joint manufacturing plant   [Jul-24-17 11:14AM  American City Business Journals]
▶ Western Digital CEO in Japan to make peace with Toshiba   [Jul-18-17 04:43PM  American City Business Journals]
Stock chart of WDC Financial statements of WDC
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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