Western Digital Will Survive IBM Move
The fear and loathing that preceded the unveiling of IBM’s new line of personal computers has passed, but the depressive effect it had on Western Digital Corp. common stock lingers on.
Still, some analysts who follow the Irvine high-tech company say that at its closing price Thursday of $24 a share--down from a recent high of $31.25 a share, but way up from its one-year low of $11.25 a share--Western Digital stock remains a good buy.
Investors who trade in high-tech stocks have developed a healthy fear of what IBM can do to their investments.
More than a few technology companies, both suppliers and competitors of IBM, have been suffocated by Big Blue in recent years.
The new line of IBM personal computers unveiled earlier this month--unlike some predecessors--won’t use Western Digital controller chips and boards, but the new machines pose little threat to IBM clone makers, who continue to buy Western Digital components.
“The big IBM announcement has come and gone and Western Digital’s order rate is as strong as ever,” Montgomery Securities Inc. analyst Daniel L. Klesken said in a recently issued “buy” recommendation.
“We estimate that Western Digital’s bookings are running approximately 15 to 20% ahead of billings,” said Klesken, who added that the company’s backlog at the start of its fiscal fourth quarter had reached a new high.
IBM still accounts for about 20% of Western Digital’s business, but the company is well diversified and should continue to prosper, said one Wall Street analyst whose firm has ties to Western Digital. The analyst said he believes that investors should treat the recent drop in Western Digital’s share price as an opportunity to get a bargain.
Since IBM’s announcement on April 2, Western Digital price-per-share has lingered in the low- to mid-$20s on the American Exchange. The analyst, who declined to be identified, blames the lackluster price on the generally poor performance of the stock market recently.
“There has been some degree of uncertainty in investors’ minds over the IBM announcement, and the performance of the stock market has helped to keep the stock down” he said. “But, we still feel that Western Digital is a buy.”
Generally, analysts have predicted that Western Digital’s current-year earnings will come in at $1.66 to $1.80 a share. Based on Western Digital’s approximately 26 million outstanding shares, that translates into fiscal 1987 net earnings of $43 million to $47 million.
Based on some analysts’ estimates of fiscal 1988 earnings of $2.25 a share, or about $59 million, Western Digital stock could break free and resume its upward movement to reach $40 a share or more within the 18 months, the analyst said.
Burt Moyer, Western Digital’s chief financial officer, said Friday that he expects fiscal 1987 earnings to hit the $1.80-a-share estimate. For Western Digital’s fiscal 1988, $2.15 to $2.25 a share “is do-able,” Moyer said.
Despite Western Digital’s strong near-term outlook, Russell Diehl, managing partner of Diehl & Co., an Irvine investment firm, said Friday that he currently is not recommending the stock to his clients.
Diehl was quick to point out, however, that he is not recommending any stocks right now because he believes that, under present market conditions, investors are better off holding onto their cash.
“Our current position is less influenced by Western Digital itself than by the overall tone of the market, Diehl said. “Were we to get back into the market, Western Digital would be high on our list.”
