What happened
Shares of Western Digital (WDC -2.64%) rose 6.9% in April, according to data from S&P Global Market Intelligence. The feat was all the more remarkable when you consider the S&P 500 was down 8.8% in April, and technology stocks were generally much lower than that.
Of course, Western Digital isn't your average tech stock. It produces digital storage technologies, including hard disk drives (HDDs) and NAND flash. Those are commodity-like products, so amid today's shortages of semiconductors and other data chips, prices have been resilient. Since Western Digital is viewed as a commodity producer, it's also valued much more cheaply than other tech stocks.
Late in the month, Western Digital delivered a positive earnings report, while also giving above-consensus guidance.
So what
In the quarter ended in March, Western Digital delivered revenue growth of 5.8% year-over-year to $4.38 billion, and growth of 62% in adjusted (non-GAAP) earnings per share to $1.65. Both figures handily beat consensus estimates. Western Digital also guided for revenue next quarter to be between $4.5 billion and $4.7 billion and EPS between $1.60 and $1.90, versus analysts' consensus of $4.55 billion and $1.67, respectively.
Western Digital's shipments were curtailed in the first quarter due to a contamination issue in its NAND flash segment, but when supply goes off the market, the company is able to get a better price and therefore higher margins to compensate. It also posted very strong cloud growth, up 25% year over year, as hard disks are still in high demand at cloud giants for bulk data storage.
Image source: Getty Images.
Now what
In early May, Western Digital attracted interest from activist hedge fund Elliott Management. Elliott disclosed a $1 billion stake, and Western Digital stock surged upward even further on the news.
Elliott believes Western Digital's acquisition of SanDisk in 2016 was a mistake. SanDisk brought Western Digital into the NAND flash business, but Elliott contends that acquiring a different type of business and technology has held the company back. A letter to Western Digital management from the hedge fund said that "a full separation of the Flash business can allow both HDD and Flash to be more successful and unlock significant value." Elliott believes such a separation could yield over $100 per share in value; compare that to the $59 per share price today.
With the stock trading at just 6.5 times next year's earnings estimates and an activist involved, Western Digital could be an interesting, idiosyncratic pick in a tough 2022 tech market.
