Western Digital Corp. (WDC) remains solid in its data storage device manufacturing business, mixing some flash solid state drives with its HDD products, while reducing manufacturing costs through its consolidation with Hitachi Storage Technology, earning the stock a “buy” rating over its peer Seagate Technology plc (STX) from Mark Miller, Senior Research Analyst at Noble Financial Group, Inc.
“Long term, Western Digital’s execution has been better than Seagate’s execution, and while Seagate’s share has remained more or less steady, there is always the possibility of some share loss due to the expiration of the long-term purchase agreements Seagate signed with their OEM customers after the flood. Seagate’s large share of the enterprise drive market makes it more susceptible to the incursion of SSDs into tier 0 storage applications,” Miller said.
Miller says there is also interest in the stock from a yield perspective, and WDC is generating large amounts of capital for distribution among shareholders. Miller says the company is currently allocating 50% of its free cash flow to either share buybacks or dividends.
“Seagate and Western Digital are generating large cash flows, have very healthy earnings outlooks, and they are trading at modest p/e multiples. They’ve also been very proactive in redistributing their earnings back to the shareholders, either through dividends or through share buybacks. Dividend stocks have come back in fashion now with a lot of the Baby Boomers retiring and looking for income,” Miller said.
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