Western Digital Is A Buy; The Growth Is Strong With This One

Share of Western Digital Corp WDC lost more than 6 percent Friday morning after the company reported its fiscal fourth-quarter results, which were in fact stronger than the company's own pre-announcement, Loop Capital Markets' Ananda Baruah stated.

Western Digital not only reported that it earned $2.93 per share in the quarter, which was above the $2.85 per share management previously guided, but the report showed signs of "momentum all over the place," Baruah continued. For instance, revenue growth on an "apples to apples" basis grew 7 to 8 percent, which was "very attracted," but the company was also constrained from component shortages.

In fact, Western Digital's revenue would have been even better in the quarter if it weren't for components being constrained, Baruah added. Also, the lack of any revenue upside to management's outlook could have also contributed to the stock's decline.

Moreover, Western Digital's management may be "upset" with its September quarter guidance but this is a positive. The company guided its earnings per share to be in a range of $3.25 to $3.35 versus the Street's expectations of $3.22 per share.

"WDC felt compelled to guide the September quarter well above Street, a practice it generally dislikes and avoids if at all possible given their conservative bent; which means business is GOOD!" the analyst explained.

Finally, Western Digital's cloud business is "literally ripping like never before" based on a 26 percent quarter-over-quarter increase in capacity shipped. In addition, the company's transition to 10TB helium is showing signs of inflection.

The analyst maintains a Buy rating and $140 price target on the stock but has a long-term potential in a range of $170 to $250.

At time of publication, shares were down 6.52 percent at $85.91.

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