Intrinsic value of Western Digital - WDC

Previous Close

$86.41

  Intrinsic Value

$2,454

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+2379%

Previous close

$86.41

 
Intrinsic value

$2,454

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+2379%

*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 25.4

 

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
  6,669
  10,660
  15,872
  22,500
  30,728
  40,722
  52,622
  66,541
  82,564
  100,743
  121,105
  143,653
  168,370
  195,223
  224,171
  255,165
  288,157
  323,100
  359,955
  398,688
  439,277
  481,710
  525,988
  572,124
  620,145
  670,089
  722,008
  775,967
  832,041
  890,317
Interest expense (income), $m
  0
  452
  751
  1,150
  1,670
  2,330
  3,147
  4,138
  5,317
  6,695
  8,279
  10,077
  12,089
  14,317
  16,758
  19,409
  22,267
  25,327
  28,583
  32,032
  35,669
  39,491
  43,496
  47,683
  52,051
  56,603
  61,340
  66,267
  71,389
  76,711
  82,242
Earnings before tax, $m
  769
  4,020
  7,202
  11,350
  16,615
  23,139
  31,049
  40,452
  51,432
  64,052
  78,350
  95,345
  113,035
  132,404
  153,428
  176,072
  200,299
  226,070
  253,351
  282,110
  312,322
  343,971
  377,050
  411,559
  447,511
  484,927
  523,838
  564,286
  606,322
  650,006
  695,407
Tax expense, $m
  372
  1,085
  1,944
  3,064
  4,486
  6,248
  8,383
  10,922
  13,887
  17,294
  21,154
  25,743
  30,519
  35,749
  41,426
  47,539
  54,081
  61,039
  68,405
  76,170
  84,327
  92,872
  101,803
  111,121
  120,828
  130,930
  141,436
  152,357
  163,707
  175,502
  187,760
Net income, $m
  397
  2,934
  5,257
  8,285
  12,129
  16,892
  22,666
  29,530
  37,546
  46,758
  57,195
  69,602
  82,515
  96,655
  112,003
  128,533
  146,218
  165,031
  184,946
  205,940
  227,995
  251,099
  275,246
  300,438
  326,683
  353,997
  382,402
  411,929
  442,615
  474,504
  507,647

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
  6,180
  9,087
  12,969
  18,019
  24,423
  32,359
  41,982
  53,430
  66,809
  82,200
  99,653
  119,195
  140,827
  164,533
  190,284
  218,037
  247,749
  279,372
  312,862
  348,181
  385,297
  424,189
  464,846
  507,269
  551,470
  597,475
  645,321
  695,057
  746,745
  800,457
  856,277
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
  2,934
  5,257
  8,285
  12,129
  16,892
  22,666
  29,530
  37,546
  46,758
  57,195
  69,602
  82,515
  96,655
  112,003
  128,533
  146,218
  165,031
  184,946
  205,940
  227,995
  251,099
  275,246
  300,438
  326,683
  353,997
  382,402
  411,929
  442,615
  474,504
  507,647
Depreciation, amort., depletion, $m
  2,128
  2,197
  2,708
  3,372
  4,215
  5,259
  6,525
  8,032
  9,792
  11,817
  14,114
  15,684
  18,530
  21,649
  25,037
  28,689
  32,599
  36,759
  41,166
  45,813
  50,697
  55,814
  61,164
  66,746
  72,562
  78,615
  84,911
  91,455
  98,256
  105,323
  112,668
Funds from operations, $m
  3,528
  5,132
  7,965
  11,657
  16,344
  22,151
  29,191
  37,562
  47,338
  58,575
  71,309
  85,285
  101,045
  118,304
  137,040
  157,222
  178,817
  201,791
  226,112
  251,753
  278,692
  306,914
  336,410
  367,184
  399,245
  432,612
  467,313
  503,384
  540,871
  579,828
  620,315
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
  4,863
  7,606
  11,190
  15,751
  21,416
  28,300
  36,502
  46,099
  57,150
  69,693
  83,476
  99,042
  116,109
  134,656
  154,652
  176,066
  198,863
  223,011
  248,483
  275,255
  303,312
  332,646
  363,256
  395,152
  428,352
  462,882
  498,779
  536,085
  574,854
  615,146
Maintenance CAPEX, $m
  0
  -813
  -1,196
  -1,706
  -2,371
  -3,214
  -4,258
  -5,524
  -7,030
  -8,791
  -10,816
  -13,112
  -15,684
  -18,530
  -21,649
  -25,037
  -28,689
  -32,599
  -36,759
  -41,166
  -45,813
  -50,697
  -55,814
  -61,164
  -66,746
  -72,562
  -78,615
  -84,911
  -91,455
  -98,256
  -105,323
New CAPEX, $m
  -557
  -2,907
  -3,881
  -5,050
  -6,405
  -7,935
  -9,624
  -11,448
  -13,379
  -15,391
  -17,453
  -19,542
  -21,632
  -23,707
  -25,750
  -27,754
  -29,712
  -31,623
  -33,490
  -35,319
  -37,116
  -38,892
  -40,657
  -42,423
  -44,201
  -46,005
  -47,846
  -49,736
  -51,688
  -53,712
  -55,820
Cash from investing activities, $m
  -636
  -3,720
  -5,077
  -6,756
  -8,776
  -11,149
  -13,882
  -16,972
  -20,409
  -24,182
  -28,269
  -32,654
  -37,316
  -42,237
  -47,399
  -52,791
  -58,401
  -64,222
  -70,249
  -76,485
  -82,929
  -89,589
  -96,471
  -103,587
  -110,947
  -118,567
  -126,461
  -134,647
  -143,143
  -151,968
  -161,143
Free cash flow, $m
  2,801
  1,142
  2,529
  4,434
  6,975
  10,267
  14,419
  19,530
  25,689
  32,969
  41,424
  50,822
  61,726
  73,873
  87,256
  101,861
  117,665
  134,641
  152,762
  171,998
  192,326
  213,723
  236,174
  259,669
  284,205
  309,785
  336,421
  364,132
  392,943
  422,886
  454,003
Issuance/(repayment) of debt, $m
  -4,291
  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
  291
  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
  9,670
  13,948
  19,291
  25,819
  33,614
  42,734
  53,211
  65,053
  78,250
  92,774
  108,317
  125,372
  143,621
  163,017
  183,517
  205,081
  227,681
  251,295
  275,912
  301,528
  328,150
  355,794
  384,484
  414,252
  445,139
  477,191
  510,464
  545,016
  580,916
  618,235
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
 
  13,326
  10,633
  14,978
  20,348
  26,836
  34,513
  43,432
  53,625
  65,104
  77,866
  91,625
  106,894
  123,372
  141,022
  159,810
  179,702
  200,670
  222,689
  245,743
  269,824
  294,929
  321,066
  348,247
  376,497
  405,843
  436,323
  467,980
  500,866
  535,036
  570,555
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
 
  12,715
  9,637
  12,831
  16,390
  20,211
  24,158
  28,073
  31,790
  35,140
  37,969
  40,029
  41,473
  42,110
  41,924
  40,942
  39,229
  36,881
  34,022
  30,791
  27,333
  23,791
  20,296
  16,961
  13,877
  11,108
  8,693
  6,645
  4,957
  3,605
  2,554
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 63.3
Price to Sales 1.3
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 7.3
Price to Free Cash Flow 8.7
Growth Rates
Sales Growth Rate 46.9%
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 -2.4%
Financial Strength
Quick Ratio 27
Current Ratio 0.1
LT Debt to Equity 113.1%
Total Debt to Equity 115.2%
Interest Coverage 0
Management Effectiveness
Return On Assets 1.3%
Ret/ On Assets - 3 Yr. Avg. 4.3%
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 15.2%
EBITDA Margin - 3 Yr. Avg. 15%
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 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 32.4%.

Life of production assets of 7.6 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 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 293.85 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 $25.4 billion.

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COMPANY NEWS

▶ Should You Sell Western Digital After its Toshiba Loss?   [Oct-20-17 08:30AM  Motley Fool]
▶ Cramer: DRAM, Bam, Take Profits on Lam   [Oct-17-17 07:01PM  TheStreet.com]
▶ Monsanto up nearly 2%   [Oct-13-17 01:09PM  CNBC Videos]
▶ Toshiba courts Western Digital for joint investment in new chip line   [10:11AM  American City Business Journals]
▶ Western Digital Announces 'Breakthrough' In Disk-Drive Storage   [Oct-11-17 04:35PM  Investor's Business Daily]
▶ Western Digital: Hard Times Ahead   [10:52AM  Barrons.com]
▶ Cramer reveals the market's top 10 actionable negatives   [Oct-04-17 06:36PM  CNBC Videos]
▶ Market's top 10 actionable negatives   [06:17PM  CNBC Videos]
▶ My 3 Biggest Stock Holdings   [Sep-29-17 07:09PM  Motley Fool]
▶ What Amazon Whole Foods Hack: Market Recon   [08:19AM  TheStreet.com]
▶ Toshiba Inks Deal to Sell Chip Unit   [12:46PM  Bloomberg Video]
▶ [$$] Western Digital Maneuvers to Block Toshiba Memory Sale   [02:47PM  The Wall Street Journal]
▶ Western Digital to block Toshiba sale   [10:34AM  Reuters Videos]
▶ Western Digital Escalates Tussle With Toshiba Over Chip Plant   [04:22PM  Investor's Business Daily]
▶ Toshiba's Board Has One Last Job   [10:31AM  Bloomberg]
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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