Western Digital CorporationWDCNASDAQ

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DCF Valuation

⚠️Model Warnings

•Revenue projections show 19% decline from peak. Analyst estimates may reflect secular headwinds or transition period.

DCF Valuation Summary

Strong Sell

Fair Value: $104.58 per share(market-calibrated)

-58.3%

Upside to Fair Value

Current

$250.61

Pure Model

$55.91

Fair Value

$104.58

Bull Case

$66.97

Bear Case

$42.64

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

Unreachable

Calibrated Growth

75/25 blend

Market price implies assumptions beyond model range. Fair value blends 75% model / 25% market price.

What's Driving This Ratingfor WDC

↓

CapEx normalizing toward maintenance

Historical CapEx is 8.01% of revenue (heavy investment phase). Model fades this to 6.00% by Year 10, freeing up ~$236M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 4.49% — below the sector mature average of 25.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $2.1B (18.28% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 31.38% in Year 1 to -19.38% by Year 5 (per analyst consensus). That's below the 3.75% terminal rate, so growth re-accelerates in Years 6-10 — a generous assumption. This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $26.98/share (12.0x terminal FCF) while exit multiple gives $84.83/share (45.4x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

⚠

Market price exceeds model's maximum

Even with the most optimistic terminal growth the model allows, it can't reach $250.61. The market is pricing in factors beyond the DCF framework — possibly optionality, brand premium, or expectations of margin/growth inflection not yet in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 61.67% indicates efficient cash generation. FCF reaches $1.9B by Year 10 (16.44% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.84

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)12.78%

Cost of Debt

Pre-tax Cost of Debt6.73%

Tax Rate21.00%

After-tax Cost of Debt5.32%

Equity Weight (E/V)94.48%

Debt Weight (D/V)5.52%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (94.48% × 12.78%) + (5.52% × 5.32%)

= 12.36%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$12.5B	$18.6B	$15.8B	$12.1B	$11.7B
EBIT	$561M	$834M	$708M	$1.4B	$2.1B
Tax	$118M	$175M	$149M	$301M	$451M
NOPAT	$443M	$659M	$559M	$1.1B	$1.7B
+ Depreciation	$1.0B	$1.6B	$1.3B	$1.0B	$984M
- Capex	$1.0B	$1.4B	$1.1B	$806M	$705M
- Δ NWC	$312M	$284M	-$396M	-$142M	$44M
Free Cash Flow	$178M	$526M	$1.2B	$1.5B	$1.9B
Discount Factor	0.890	0.705	0.558	0.442	0.312
Present Value	$158M	$371M	$645M	$655M	$602M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.9B

Terminal Growth Rate3.75%

WACC12.36%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$23.3B

PV of Terminal Value$7.2B

Exit Multiple Method

Year 10 EBITDA$3.1B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$87.6B

PV of Terminal Value$27.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$5.1B

PV of Terminal Value$7.2B

Enterprise Value$12.3B

(-) Net Debt$3.0B

Equity Value$9.4B

Shares Outstanding347M

Price per Share$26.98

Exit Multiple Method

PV of Projected FCFs$5.1B

PV of Terminal Value$27.3B

Enterprise Value$32.4B

(-) Net Debt$3.0B

Equity Value$29.4B

Shares Outstanding347M

Price per Share$84.83

Pure Model Fair Value

$55.91

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
10.36%	$68.99	$70.04	$71.26	$72.68	$74.35
11.36%	$61.31	$62.06	$62.92	$63.89	$65.02
12.36%	$54.73	$55.29	$55.91	$56.60	$57.39
13.36%	$49.01	$49.43	$49.89	$50.41	$50.98
14.36%	$43.99	$44.31	$44.67	$45.05	$45.48

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$42.64

-83.0% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 2.30

Base Case

$55.91

-77.7% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.84

Bull Case

$66.97

-73.3% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.56

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth31.38%

Year 3 Revenue Growth17.15%

Year 5 Revenue Growth-19.38%

Year 7 Revenue Growth-10.13%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin4.49%

Terminal EBIT Margin25.00%

Tax Rate21.00%

Historical Capex / Rev8.01%

Terminal Capex / Rev6.00%

NWC / Revenue10.45%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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