Western Digital Corporation

WDC Details

Western Digital Corporation (NASDAQ: WDC) is a primary developer, producer, and provider of data storage devices (flash-based products and hard disk drives) and solutions in the Americas, Europe, the Middle East, and Africa (EMEA), and Asia. Its primary brands include Western Digital, the Western Digital logo, G-Technology, SanDisk, and WD. As of October 29, 2021, WDC's market capitalization stood at USD 16.29 billion.

Latest News:

• Joins WEF Lighthouse Network: The World Economic Forum (WEF) nominated two of WDC's smart factories in Asia to the Global Lighthouse Network, a group of global firms that have amplified the Fourth Industrial Revolution (4IR), on September 27, 2021.  WDC is the first firm in Malaysia to earn this accolade for an intelligent manufacturing facility.

• Carbon Reduction Goals: On September 09, 2021, WDC announced that the Science Based Targets initiative (SBTi) had approved its greenhouse gas emission reduction goals, in line with the Paris Agreement and SBTi criteria and standards. WDC's objectives will put it on course to achieve or surpass the Paris Climate Agreement's targets, emphasizing lowering operating emissions by 42% by 2030.

Q1FY22 Results:

• Boost in Revenue: The company reported an increase of 28.79% in revenues to USD 5.05 billion in Q1FY22 (ended October 01, 2021) compared to USD 3.92 billion in Q1FY21 (ended October 02, 2020), due to growth in sales across all divisions.
• Enrichment in Net Income: WDC recorded an increase in net income to USD 610 million in Q1FY22 vs. a loss of USD 60 million in Q1FY21.
• Improvement in Cashflow from Operations: Net operating cash inflow in Q1FY22 was USD 521 million vs. USD 363 million in Q1FY21.

Key Risks:

• Customer Concentration Risk: In FY21, FY20, and FY19, the top 10 clients provided 39%, 42%, and 45% of the company's net revenues, respectively. Such extensive reliance on a few critical clients for income could harm its financial and operational health in the long run.
• Supplier Concentration Risk: WDC's controller wafers are made by third-party vendors, with Flash Ventures providing virtually all of its flash memory wafers. Failure to get silicon wafers from any of these vendors, as a result, might have a detrimental influence on the company's business and financial situation.

Outlook:

Q2FY22 Guidance (Source: Q1FY22 Earnings Presentation, October 28, 2021)

Valuation Methodology: EV/EBITDA per share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

WDC Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

WDC is currently trading below the mid-band of the 52-week range of USD 36.59 to USD 78.19. The stock is currently trading far below its 50 and 100 DMA levels, and its RSI Index is at 34.94. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 66.37.

Considering the company's current trading levels, improved financial performance, healthy balance sheet, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 52.29, down 8.71% as of October 29, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

The Western Union Company

WU Details

The Western Union Company (NYSE: WU) operates as a money movement and payment service firm, enabling individuals and businesses to transfer money and make payments globally. The company's money transfer transactions services are offered in over 200 countries and through its websites and mobile applications. WU derives its revenue from fees paid by customers for transferring money. As of October 29, 2021, WU's market capitalization stood at USD 7.40 billion.

Latest News:

• Geographical Expansion: On October 13, 2021, Western Union International Bank (WUIB), a subsidiary of WU, became a Direct Participant in the Single Euro Payments Area Instant Credit Transfer system (SCT Inst), furthering its real-time payment capabilities across Europe.
• Strategic Investment: On October 12, 2021, WU acquired a minority stake (15%) in stc Bank, a digital wallet service provider in Saudi Arabia for USD 200 million. This transaction will enable the provision of transfer services to the bank’s users through its app via WU’s global network in over 130 currencies across 200 countries.

Q2FY21 Results:

• Growth in Topline: WU reported a YoY growth of 15.70% in total revenue to USD 1.29 billion in Q2FY21 (ended June 30, 2021) compared to USD 11 billion in Q2FY20, attributable to increase in transaction volumes.
• Progress in Operating Income: The Company’s operating income for Q2FY21 was USD 254.9 million, up 14.92% from USD 221.8 million in Q2FY20.
• Reduction in Profitability: Net income was USD 222.5 million in Q2FY21, compared to USD 161.9 million in Q2FY20.
• Cash and Debt Position: As of June 30, 2021, the company had cash & cash equivalents of USD 1.06 billion and total debt of USD 3.0 billion.

Risks:

• Competition Risk: WU operates in a highly competitive money transfer and business payments industry and faces direct competition from various financial and non-financial business sectors. WU's distribution network and channel alternatives have been impacted by the increased competition from new competitors and the consolidation and growth of competitors' services. Should this trend continue, it could harm the company's financials.

Outlook:

FY21 Outlook (Source: Earnings Release, Q2FY21, August 04, 2021)

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

WU Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

WU's stock price has declined 21.67% in the past three months and is currently leaning towards the lower end of its 52-week range of USD 18.18 to USD 26.61. The stock is currently trading below its 50 and 100 DMA levels, and its RSI Index is at 24.23. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 23.67.

Considering the significant correction in the stock price in the past three months, strategic growth initiatives, strong profitability margins, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the closing price of USD 18.22, down 1.78% as of October 29, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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