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. Client Devices, Data Center Devices and Solutions, and Client Solutions are the major end markets addressed by the company's technologies and products. WDC also earns income from its vast intellectual property (IP), incorporated in each of its three end market segments through licenses and royalties. Its primary brands include Western Digital, the Western Digital logo, G-Technology, SanDisk, and WD.
Carbon Reduction Goals: WDC stated on September 09, 2021, that the Science Based Targets initiative (SBTi) had accepted its greenhouse gas emission reduction objectives, which are consistent with the Paris Agreement and SBTi criteria and standards. WDC's goals will put it on track to meet or exceed the Paris Climate Agreement guidance, focusing on reducing operational emissions by 42% by 2030.
FY21 Results: The company reported a slight increase of 1.11% in revenues to USD 16.92 billion in FY21 (ended July 02, 2021) compared to USD 16.74 billion in FY20 (ended July 03, 2020). However, WDC witnessed a significant increase in net income to USD 821 million in FY21 vs. a loss of USD 250 million in FY20. As of July 02, 2021, its cash and cash equivalents were USD 3.37 billion, with a total debt of USD 8.73 billion.
Key Risks: The top ten clients contributed 39%, 42%, and 45% of the company's net sales in FY21, FY20, and FY19, respectively. The company's financial and operational health might be jeopardized in the future if it places too much dependence on a few critical customers for income.
Further, WDC's controller wafers are all manufactured by third-party suppliers, while its flash memory wafers are nearly completely provided by Flash Ventures. As a result, failure to obtain silicon wafers from any of these suppliers might negatively impact the company's business and financial condition.
Outlook:
Q1FY22 Guidance (Source: FY21 Results Presentation, August 04, 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's share price has declined 23.08% in the past three months and 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 200 DMA levels, and its RSI Index is at 33.43. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 66.82. 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 current price of USD 53.91, down 4.02% as of October 12, 2021, 1:06 PM ET.
* 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.
Fair Isaac Corporation
FICO Details
Fair Isaac Corporation (NYSE: FICO) provides analytical software and data management solutions and services that help companies automate, enhance, and link their choices. It offers banks, credit reporting agencies, credit card processing agencies, insurers, merchants, healthcare organizations, and other related sectors a variety of analytic solutions, including credit scoring and credit account management products and services. The majority of FICO's income comes from term-based perpetual software and scoring product and solution licensing, as well as associated maintenance, SaaS subscription services, consumer scoring and credit monitoring services, and professional services.
Stock Repurchase Program: FICO launched a stock buyback program to buy up to USD 500 million of its outstanding common shares on August 18, 2021. The open-ended stock repurchase program allows the firm to repurchase its shares in the open market and negotiated transactions as needed.
Introduction of 13 New Patents: On August 06, 2021, FICO stated that it had been granted 13 new patents in artificial intelligence (AI), machine learning (ML), fraud, and decision management platforms. FICO continues to assist its clients by automating critical business processes and decisioning with industry-leading technologies. FICO currently has 204 US and foreign patents and 85 pending patent applications, thanks to the 13 breakthroughs.
9MFY21 Results: The company reported a slight upside of 6.71% in revenues to USD 981.96 million during 9MFY21 (ended June 30, 2021) compared to USD 920.21 million during 9MFY20, mainly due to higher unit price in the auto, unsecured originations and insurance markets, as well as origination volumes in its scores segment. As a result, net income increased significantly to USD 306.36 million during 9MFY21 vs. USD 177.29 million during 9MFY20. As of June 30, 2021, the company's cash balance stood at USD 237.61 million, with total debt of USD 1.06 billion.
Key Risks: Revenues generated from its credit reporting agency (CRA) contracts with Experian, TransUnion, and Equifax represented 17%, 12%, and 10%, respectively, of total Q3FY21 revenues. During Q3FY20, sales to these companies amounted to 15%, 11%, and 9% of total revenues, respectively. Such over-reliance on certain CRAs might be detrimental to the company's financial health in the long run.
Outlook: FICO expects that its future cash flow, along with its current cash position and available borrowings at the end of Q3FY21, will be sufficient to meet its working capital and general corporate requirements. It further claimed that no substantial financial obligations are due to mature in the next 12 months.
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 NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
FICO Daily Technical Chart (Source: REFINITIV)
Stock Recommendation: FICO's share price has declined 24.14% in the past six months and is currently trading leaning towards the lower-band of the 52-week range of USD 380.00 to USD 553.97. The stock is currently trading far below its 50 and 200 DMA levels, and its RSI Index is at 34.40. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 490.85. Considering the company's current trading levels, improved financial performance, new patent grants, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 398.12, up 0.91% as of October 12, 2021, 1:54 PM ET.
* 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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