WDC - Valens Credit Report - 2023 04 25
In the base scenario, cash bond markets are overstating WDC's credit risk with a cash bond YTW of 6.107% relative to an Intrinsic YTW of 5.101%, while CDS markets are slightly overstating WDC's credit risk with a CDS of 203bps and an Intrinsic CDS of 130bps.That said, based on a negative case, credit markets are materially understating WDC's credit risk with a YTW of 6.107% and a CDS of 203bps relative to an Intrinsic YTW of 8.131% and an Intrinsic CDS of 433bps.
Meanwhile, Incentives Dictate Behavior™ analysis highlights mostly negative signals for credit holders. Creditors may be concerned about management's potential to overspend on capex or take on excess leverage to finance growth as elevated interest expenses would not affect their total compensation.
Furthermore, Valens' qualitative analysis of WDC's Q2 2023 earnings call highlights that management may be concerned about having access to enough liquidity to manage the current downturn.
Western Digital is a developer, manufacturer, and provider of data storage devices and solutions. The company's portfolio of technology and products address the following markets: Client Devices, which consist of hard disk drives (HDDs) and solid state drives (SSDs) for computing devices, flash-based embedded storage products, and flash-based memory wafers and components; Data Center Devices and Solutions, which consist of enterprise HDDs and enterprise SSDs, data center software and system solutions; and Client Solutions, which consist of HDDs and SSDs embedded into external storage products and removable flash-based products, such as cards, universal serial bus flash drives and wireless drives.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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