Intrinsic value of Western Digital - WDC

Previous Close

$83.63

  Intrinsic Value

$2,236

stock screener

  Rating & Target

str. buy

+999%

Previous close

$83.63

 
Intrinsic value

$2,236

 
Up/down potential

+999%

 
Rating

str. buy

*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 2017), $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 24.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  46.94
  46.90
  42.71
  38.94
  35.55
  32.49
  29.74
  27.27
  25.04
  23.04
  21.23
  19.61
  18.15
  16.83
  15.65
  14.59
  13.63
  12.76
  11.99
  11.29
  10.66
  10.09
  9.58
  9.13
  8.71
  8.34
  8.01
  7.71
  7.44
  7.19
  6.97
Revenue, $m
  19,093
  28,048
  40,027
  55,613
  75,380
  99,872
  129,575
  164,907
  206,201
  253,703
  307,571
  367,885
  434,651
  507,819
  587,295
  672,954
  764,656
  862,258
  965,623
  1,074,632
  1,189,189
  1,309,226
  1,434,711
  1,565,646
  1,702,069
  1,844,060
  1,991,732
  2,145,238
  2,304,768
  2,470,546
  2,642,831
Variable operating expenses, $m
 
  20,734
  29,162
  40,128
  54,035
  71,266
  92,164
  117,022
  146,074
  179,494
  217,393
  258,826
  305,799
  357,277
  413,192
  473,458
  537,975
  606,643
  679,366
  756,059
  836,656
  921,108
  1,009,393
  1,101,512
  1,197,493
  1,297,391
  1,401,286
  1,509,286
  1,621,523
  1,738,157
  1,859,368
Fixed operating expenses, $m
 
  2,841
  2,912
  2,985
  3,060
  3,136
  3,215
  3,295
  3,377
  3,462
  3,548
  3,637
  3,728
  3,821
  3,917
  4,015
  4,115
  4,218
  4,323
  4,431
  4,542
  4,656
  4,772
  4,892
  5,014
  5,139
  5,268
  5,399
  5,534
  5,673
  5,814
Total operating expenses, $m
  17,139
  23,575
  32,074
  43,113
  57,095
  74,402
  95,379
  120,317
  149,451
  182,956
  220,941
  262,463
  309,527
  361,098
  417,109
  477,473
  542,090
  610,861
  683,689
  760,490
  841,198
  925,764
  1,014,165
  1,106,404
  1,202,507
  1,302,530
  1,406,554
  1,514,685
  1,627,057
  1,743,830
  1,865,182
Operating income, $m
  1,954
  4,472
  7,952
  12,500
  18,285
  25,469
  34,196
  44,590
  56,749
  70,747
  86,629
  105,422
  125,124
  146,721
  170,186
  195,482
  222,566
  251,397
  281,934
  314,142
  347,991
  383,462
  420,546
  459,242
  499,562
  541,530
  585,178
  630,553
  677,711
  726,717
  777,649
EBITDA, $m
  4,082
  6,835
  10,897
  16,201
  22,947
  31,320
  41,489
  53,598
  67,762
  84,066
  102,564
  123,284
  146,228
  171,378
  198,702
  228,156
  259,693
  293,264
  328,819
  366,320
  405,731
  447,031
  490,207
  535,261
  582,205
  631,067
  681,885
  734,714
  789,617
  846,673
  905,970
Interest expense (income), $m
  777
  672
  1,115
  1,709
  2,482
  3,461
  4,675
  6,148
  7,899
  9,946
  12,301
  14,971
  17,961
  21,270
  24,897
  28,837
  33,083
  37,628
  42,467
  47,590
  52,994
  58,672
  64,623
  70,843
  77,333
  84,096
  91,134
  98,454
  106,063
  113,971
  122,189
Earnings before tax, $m
  769
  3,800
  6,837
  10,791
  15,804
  22,008
  29,521
  38,442
  48,850
  60,800
  74,328
  90,451
  107,163
  125,451
  145,289
  166,645
  189,483
  213,769
  239,468
  266,551
  294,997
  324,790
  355,923
  388,399
  422,229
  457,434
  494,044
  532,099
  571,648
  612,746
  655,460
Tax expense, $m
  372
  1,026
  1,846
  2,914
  4,267
  5,942
  7,971
  10,379
  13,189
  16,416
  20,069
  24,422
  28,934
  33,872
  39,228
  44,994
  51,161
  57,718
  64,656
  71,969
  79,649
  87,693
  96,099
  104,868
  114,002
  123,507
  133,392
  143,667
  154,345
  165,441
  176,974
Net income, $m
  397
  2,774
  4,991
  7,877
  11,537
  16,066
  21,550
  28,063
  35,660
  44,384
  54,260
  66,029
  78,229
  91,579
  106,061
  121,651
  138,323
  156,051
  174,811
  194,583
  215,348
  237,097
  259,824
  283,531
  308,227
  333,927
  360,652
  388,433
  417,303
  447,305
  478,486

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,378
  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
  29,860
  34,499
  49,233
  68,404
  92,719
  122,844
  159,379
  202,838
  253,630
  312,057
  378,316
  452,503
  534,626
  624,624
  722,380
  827,742
  940,537
  1,060,588
  1,187,729
  1,321,811
  1,462,717
  1,610,365
  1,764,712
  1,925,763
  2,093,566
  2,268,216
  2,449,855
  2,638,670
  2,834,894
  3,038,803
  3,250,715
Adjusted assets (=assets-cash), $m
  23,482
  34,499
  49,233
  68,404
  92,719
  122,844
  159,379
  202,838
  253,630
  312,057
  378,316
  452,503
  534,626
  624,624
  722,380
  827,742
  940,537
  1,060,588
  1,187,729
  1,321,811
  1,462,717
  1,610,365
  1,764,712
  1,925,763
  2,093,566
  2,268,216
  2,449,855
  2,638,670
  2,834,894
  3,038,803
  3,250,715
Revenue / Adjusted assets
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
  0.813
Average production assets, $m
  7,697
  11,303
  16,131
  22,412
  30,378
  40,248
  52,219
  66,458
  83,099
  102,242
  123,951
  148,258
  175,164
  204,651
  236,680
  271,200
  308,156
  347,490
  389,146
  433,077
  479,243
  527,618
  578,189
  630,955
  685,934
  743,156
  802,668
  864,531
  928,822
  995,630
  1,065,061
Working capital, $m
  6,712
  841
  1,201
  1,668
  2,261
  2,996
  3,887
  4,947
  6,186
  7,611
  9,227
  11,037
  13,040
  15,235
  17,619
  20,189
  22,940
  25,868
  28,969
  32,239
  35,676
  39,277
  43,041
  46,969
  51,062
  55,322
  59,752
  64,357
  69,143
  74,116
  79,285
Total debt, $m
  13,151
  21,446
  32,865
  47,722
  66,566
  89,913
  118,228
  151,908
  191,272
  236,553
  287,904
  345,399
  409,044
  478,792
  554,553
  636,209
  723,625
  816,665
  915,199
  1,019,113
  1,128,315
  1,242,742
  1,362,361
  1,487,176
  1,617,223
  1,752,576
  1,893,346
  2,039,678
  2,191,752
  2,349,781
  2,514,013
Total liabilities, $m
  18,442
  26,737
  38,156
  53,013
  71,857
  95,204
  123,519
  157,199
  196,563
  241,844
  293,195
  350,690
  414,335
  484,083
  559,844
  641,500
  728,916
  821,956
  920,490
  1,024,404
  1,133,606
  1,248,033
  1,367,652
  1,492,467
  1,622,514
  1,757,867
  1,898,637
  2,044,969
  2,197,043
  2,355,072
  2,519,304
Total equity, $m
  11,418
  7,762
  11,078
  15,391
  20,862
  27,640
  35,860
  45,639
  57,067
  70,213
  85,121
  101,813
  120,291
  140,540
  162,535
  186,242
  211,621
  238,632
  267,239
  297,407
  329,111
  362,332
  397,060
  433,297
  471,052
  510,349
  551,217
  593,701
  637,851
  683,731
  731,411
Total liabilities and equity, $m
  29,860
  34,499
  49,234
  68,404
  92,719
  122,844
  159,379
  202,838
  253,630
  312,057
  378,316
  452,503
  534,626
  624,623
  722,379
  827,742
  940,537
  1,060,588
  1,187,729
  1,321,811
  1,462,717
  1,610,365
  1,764,712
  1,925,764
  2,093,566
  2,268,216
  2,449,854
  2,638,670
  2,834,894
  3,038,803
  3,250,715
Debt-to-equity ratio
  1.152
  2.760
  2.970
  3.100
  3.190
  3.250
  3.300
  3.330
  3.350
  3.370
  3.380
  3.390
  3.400
  3.410
  3.410
  3.420
  3.420
  3.420
  3.420
  3.430
  3.430
  3.430
  3.430
  3.430
  3.430
  3.430
  3.430
  3.440
  3.440
  3.440
  3.440
Adjusted equity ratio
  0.215
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  397
  2,774
  4,991
  7,877
  11,537
  16,066
  21,550
  28,063
  35,660
  44,384
  54,260
  66,029
  78,229
  91,579
  106,061
  121,651
  138,323
  156,051
  174,811
  194,583
  215,348
  237,097
  259,824
  283,531
  308,227
  333,927
  360,652
  388,433
  417,303
  447,305
  478,486
Depreciation, amort., depletion, $m
  2,128
  2,363
  2,945
  3,702
  4,661
  5,851
  7,293
  9,008
  11,013
  13,320
  15,935
  17,862
  21,104
  24,657
  28,516
  32,675
  37,127
  41,866
  46,885
  52,178
  57,740
  63,568
  69,661
  76,019
  82,643
  89,537
  96,707
  104,160
  111,906
  119,955
  128,321
Funds from operations, $m
  3,528
  5,137
  7,936
  11,579
  16,198
  21,916
  28,843
  37,071
  46,674
  57,704
  70,195
  83,891
  99,333
  116,236
  134,576
  154,325
  175,450
  197,917
  221,697
  246,760
  273,088
  300,665
  329,485
  359,550
  390,870
  423,464
  457,359
  492,593
  529,209
  567,260
  606,807
Change in working capital, $m
  91
  269
  359
  468
  593
  735
  891
  1,060
  1,239
  1,425
  1,616
  1,809
  2,003
  2,195
  2,384
  2,570
  2,751
  2,928
  3,101
  3,270
  3,437
  3,601
  3,765
  3,928
  4,093
  4,260
  4,430
  4,605
  4,786
  4,973
  5,169
Cash from operations, $m
  3,437
  4,869
  7,576
  11,111
  15,605
  21,182
  27,952
  36,011
  45,435
  56,279
  68,579
  82,082
  97,330
  114,041
  132,192
  151,756
  172,699
  194,989
  218,596
  243,490
  269,651
  297,064
  325,721
  355,622
  386,777
  419,204
  452,929
  487,988
  524,423
  562,287
  601,638
Maintenance CAPEX, $m
  0
  -927
  -1,362
  -1,943
  -2,700
  -3,660
  -4,849
  -6,291
  -8,007
  -10,012
  -12,318
  -14,934
  -17,862
  -21,104
  -24,657
  -28,516
  -32,675
  -37,127
  -41,866
  -46,885
  -52,178
  -57,740
  -63,568
  -69,661
  -76,019
  -82,643
  -89,537
  -96,707
  -104,160
  -111,906
  -119,955
New CAPEX, $m
  -578
  -3,607
  -4,828
  -6,281
  -7,966
  -9,870
  -11,970
  -14,239
  -16,641
  -19,143
  -21,709
  -24,306
  -26,907
  -29,487
  -32,029
  -34,521
  -36,956
  -39,334
  -41,656
  -43,931
  -46,166
  -48,375
  -50,570
  -52,767
  -54,979
  -57,222
  -59,512
  -61,863
  -64,291
  -66,809
  -69,431
Cash from investing activities, $m
  -636
  -4,534
  -6,190
  -8,224
  -10,666
  -13,530
  -16,819
  -20,530
  -24,648
  -29,155
  -34,027
  -39,240
  -44,769
  -50,591
  -56,686
  -63,037
  -69,631
  -76,461
  -83,522
  -90,816
  -98,344
  -106,115
  -114,138
  -122,428
  -130,998
  -139,865
  -149,049
  -158,570
  -168,451
  -178,715
  -189,386
Free cash flow, $m
  2,801
  335
  1,387
  2,887
  4,939
  7,651
  11,132
  15,481
  20,787
  27,124
  34,552
  42,842
  52,561
  63,450
  75,507
  88,719
  103,068
  118,529
  135,073
  152,675
  171,307
  190,949
  211,582
  233,194
  255,780
  279,339
  303,880
  329,418
  355,972
  383,572
  412,252
Issuance/(repayment) of debt, $m
  -4,281
  8,528
  11,419
  14,858
  18,844
  23,347
  28,315
  33,680
  39,364
  45,281
  51,351
  57,494
  63,645
  69,748
  75,761
  81,655
  87,416
  93,040
  98,534
  103,914
  109,202
  114,427
  119,620
  124,815
  130,047
  135,354
  140,770
  146,332
  152,074
  158,029
  164,232
Issuance/(repurchase) of shares, $m
  296
  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 from financing (excl. dividends), $m  
  -4,021
  8,528
  11,419
  14,858
  18,844
  23,347
  28,315
  33,680
  39,364
  45,281
  51,351
  57,494
  63,645
  69,748
  75,761
  81,655
  87,416
  93,040
  98,534
  103,914
  109,202
  114,427
  119,620
  124,815
  130,047
  135,354
  140,770
  146,332
  152,074
  158,029
  164,232
Total cash flow (excl. dividends), $m
  -1,223
  8,862
  12,806
  17,744
  23,782
  30,998
  39,447
  49,161
  60,150
  72,405
  85,902
  100,336
  116,206
  133,198
  151,268
  170,375
  190,484
  211,569
  233,607
  256,588
  280,509
  305,376
  331,202
  358,009
  385,827
  414,693
  444,650
  475,749
  508,046
  541,602
  576,484
Retained Cash Flow (-), $m
  -273
  -2,489
  -3,315
  -4,313
  -5,471
  -6,778
  -8,221
  -9,778
  -11,428
  -13,146
  -14,908
  -16,692
  -18,478
  -20,250
  -21,995
  -23,706
  -25,379
  -27,012
  -28,607
  -30,169
  -31,704
  -33,221
  -34,728
  -36,236
  -37,756
  -39,296
  -40,869
  -42,483
  -44,150
  -45,880
  -47,680
Prev. year cash balance distribution, $m
 
  6,145
  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
 
  12,518
  9,491
  13,431
  18,311
  24,220
  31,227
  39,383
  48,722
  59,259
  70,994
  83,644
  97,729
  112,949
  129,273
  146,668
  165,106
  184,557
  205,000
  226,420
  248,805
  272,155
  296,473
  321,772
  348,071
  375,397
  403,782
  433,266
  463,895
  495,722
  528,804
Discount rate, %
 
  4.80
  5.04
  5.29
  5.56
  5.83
  6.13
  6.43
  6.75
  7.09
  7.45
  7.82
  8.21
  8.62
  9.05
  9.50
  9.98
  10.48
  11.00
  11.55
  12.13
  12.74
  13.37
  14.04
  14.74
  15.48
  16.25
  17.07
  17.92
  18.82
  19.76
PV of cash for distribution, $m
 
  11,945
  8,602
  11,506
  14,750
  18,241
  21,857
  25,456
  28,884
  31,985
  34,618
  36,543
  37,917
  38,552
  38,431
  37,576
  36,042
  33,920
  31,320
  28,370
  25,204
  21,954
  18,742
  15,672
  12,830
  10,275
  8,044
  6,152
  4,591
  3,340
  2,367
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Western Digital Corporation (Western Digital) is a developer, manufacturer and provider of data storage devices and solutions that address the needs of the information technology (IT) industry and the infrastructure that enables the proliferation of data in virtually every industry. The Company's portfolio of offerings addresses three categories: Datacenter Devices and Solutions (capacity and performance enterprise hard disk drives (HDDs), enterprise solid state drives (SSDs), datacenter software and system solutions); Client Devices (mobile, desktop, gaming and digital video hard drives, client SSDs, embedded products and wafers), and Client Solutions (removable products, hard drive content solutions and flash content solutions). The Company develops and manufactures a portion of the recording heads and magnetic media used in its hard drive products.

FINANCIAL RATIOS  of  Western Digital (WDC)

Valuation Ratios
P/E Ratio 61.9
Price to Sales 1.3
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 7.2
Price to Free Cash Flow 8.6
Growth Rates
Sales Growth Rate 46.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -1%
Cap. Spend. - 3 Yr. Gr. Rate -1.6%
Financial Strength
Quick Ratio 27
Current Ratio 0.1
LT Debt to Equity 113.1%
Total Debt to Equity 115.2%
Interest Coverage 2
Management Effectiveness
Return On Assets 2.5%
Ret/ On Assets - 3 Yr. Avg. 4.7%
Return On Total Capital 1.5%
Ret/ On T. Cap. - 3 Yr. Avg. 5.1%
Return On Equity 3.5%
Return On Equity - 3 Yr. Avg. 7.4%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 31.8%
Gross Margin - 3 Yr. Avg. 29.1%
EBITDA Margin 19.2%
EBITDA Margin - 3 Yr. Avg. 16.3%
Operating Margin 10.2%
Oper. Margin - 3 Yr. Avg. 8.3%
Pre-Tax Margin 4%
Pre-Tax Margin - 3 Yr. Avg. 5.3%
Net Profit Margin 2.1%
Net Profit Margin - 3 Yr. Avg. 4.7%
Effective Tax Rate 48.4%
Eff/ Tax Rate - 3 Yr. Avg. -0.9%
Payout Ratio 144.6%

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 $19093 million for the last fiscal year's total revenue generated by Western Digital. The default revenue input number comes from 2017 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 46.9% 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 4.8%, 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 75.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2772 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 5.2% 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 40.3%.

Life of production assets of 8.3 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 3%. 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 - $11418 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 295.22 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 $24.7 billion.

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COMPANY NEWS

▶ Asian shares mixed as Fed hike gives investors few surprises   [Dec-13-17 11:16PM  Associated Press]
▶ Toshiba, Western Digital make peace on sale of chip unit   [Dec-12-17 10:33PM  Associated Press]
▶ Toshiba Defeats Western Digital (Wink)   [10:09PM  Bloomberg]
▶ [$$] Toshiba, Western Digital Make Peace   [07:54PM  The Wall Street Journal]
▶ Why Unibail-Rodamco Is Buying Westfield   [01:15PM  Bloomberg Video]
▶ Putting Your Money into Infrastructure   [Dec-08-17 01:40PM  CNBC Videos]
▶ Western Digital and Toshiba to reportedly call a truce next week   [10:45AM  American City Business Journals]
▶ Trade of the Day: Western Digital Corp (WDC)   [10:01AM  InvestorPlace]
▶ WDCs Client Solutions Banks on Diversified Product Portfolio   [Dec-05-17 10:32AM  Market Realist]
▶ How Western Digital Views Fiscal 2Q18   [Dec-04-17 10:11PM  Market Realist]
▶ Western Digital Stock: Why It Fell Last Week   [03:45PM  Market Realist]
▶ Toshiba's Chip-Making Bedfellows Are a Complicated Group   [Dec-02-17 07:01AM  TheStreet.com]
▶ Toshiba, Western Digital near deal   [10:47AM  Reuters Videos]
▶ Cramer: When They Are Down, Memory Stocks May Be Must-Buys   [Nov-28-17 07:01PM  TheStreet.com]
▶ Micron Stock: Is the Rally at Risk?   [03:56PM  Investopedia]
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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