Can Western Digital's Strong FCF Sustain Buybacks and Dividends?

Western Digital Corporation WDC entered fiscal 2027 with stronger cash generation and a net cash position after a year of significant shareholder returns. In fiscal 2026, operating cash flow reached $3.93 billion, up 132% year over year, while free cash flow (FCF) rose 145% to $3.51 billion. With fiscal 2026 revenues of $12.9 billion, FCF margin was about 27%. Capital expenditures totaled $418 million for the year.

The company returned $3.1 billion to shareholders during fiscal 2026 through dividends and share repurchases. In the fiscal fourth quarter, Western Digital generated $1.4 billion in operating cash flow and $1.3 billion in free cash flow, equal to a 34% FCF margin. It reported repurchases of 2.3 million shares for $1 billion and paid $54 million in dividends. Management noted that the repurchase figures included $328 million used to settle the conversion premium on certain convertible notes in cash instead of stock, avoiding roughly 773,000 new shares. Western Digital also monetized its remaining 1.7 million SanDisk Corporation SNDK shares by exchanging them for 4.8 million Western Digital shares.

At fiscal year-end, Western Digital held $1.6 billion in cash and $1.1 billion in debt, resulting in a net positive cash position of about $500 million. On the last earnings call, management highlighted that there was no change to the company’s strategy and reaffirmed its commitment to returning FCF to shareholders through dividends and share repurchases. The board also declared a 15- cents-per-share dividend payable Sept. 17, 2026, to shareholders of record on Sept. 8.

For the first quarter of fiscal 2027, Western Digital expects revenue of $4.1 billion, plus or minus $100 million, gross margin of 55-56%, operating expenses of $390-$400 million, interest and other expenses of about $15 million, a 17% tax rate and non-GAAP EPS of $4.00, plus or minus 15 cents, based on roughly 388 million diluted shares.
Management stated that demand and favorable pricing to continue, while investments are being made in heads, media operations and automation without adding unit-capacity capital expenditures. Western Digital is on track to ship its 44-terabyte HAMR product in the first half of calendar 2027.

Taking a Look at WDC’s Competitors

Seagate Technology STX delivered strong profitability and cash flow in fiscal 2026, supported by operating leverage, pricing and disciplined spending. Non-GAAP operating margin expanded to 44.6% from 26.2% a year earlier, while June-quarter free cash flow reached $1.12 billion, or about 31% of revenues. Fiscal 2026 FCF hit a record $3.1 billion. Financial flexibility also improved as gross debt fell $1.4 billion, leaving net leverage at 0.4 times adjusted EBITDA. Seagate later retired $1 billion of high-yield notes and plans to eliminate the remaining convertible notes, reducing interest expense and supporting shareholder returns and future technology investments and growth initiatives.

SanDisk’s strong cash generation supports continued shareholder returns and technology investments. Adjusted free cash flow reached $5.04 billion in fourth-quarter fiscal 2026, representing a 56% margin, excluding $1.94 billion of NBM  prepayments and deposits. The company ended fiscal 2026 with $4.76 billion in cash and no long-term debt. Sandisk repurchased $4.5 billion of shares during the quarter and expanded its authorization by $14 billion, leaving $15.5 billion available. Management plans to invest in BiCS8 and BiCS10 while maintaining buybacks. Fiscal 2027 capital spending is expected to decline to roughly 6% of revenues.

WDC Price Performance, Valuation and Estimates

In the past year, shares of WDC have surged 406% compared with the Zacks Computer-Storage Devices industry’s growth of 392.8%.

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Going by the price/earnings ratio, the company’s shares currently trade at 20.86 forward earnings compared with 10.67 for the industry.

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WDC’s estimate revisions are currently on an upward trajectory. The Zacks Consensus Estimate for the company’s earnings for fiscal 2027 has been revised upward by 7.5% to $20.03 over the past 60 days, while the same for fiscal 2028 has gone up 7.6% to $34.74.

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Currently, Western Digital has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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