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Western Digital's $3.5B FCF: Can Growth Continue in Fiscal 2027?
Western Digital Corporation WDC delivered an impressive $3.5 billion in free cash flow (“FCF”) for fiscal 2026, representing a 27% FCF margin. In the fiscal fourth quarter alone, FCF reached $1.3 billion, translating into a solid 34% margin. This robust performance highlights the company’s ability to convert earnings into cash efficiently, while providing flexibility in capital allocation.
WDC’s fiscal 2026 revenues increased 36% to $12.9 billion, driven by strong exabyte shipments and pricing tailwinds. Gross margin expanded 970 basis points (bps) to 49.1% and operating margin improved 1,290 bps to 37.3%. Favorable mix of high-capacity drives, pricing and efficient execution across manufacturing operations cushioned margin performance.
Western Digital Corporation Free Cash Flow (Quarterly)
Western Digital Corporation free-cash-flow-quarterly | Western Digital Corporation Quote
Western Digital also demonstrated a clear commitment to returning value to its shareholders. The company returned $3.1 billion to its shareholders in fiscal 2026. During the fiscal fourth quarter, it repurchased $1 billion of stock and paid $54 million in dividends. The company ended the quarter with $1.6 billion in cash and $1.1 billion in debt, leading to a $500 million net positive cash position at the fiscal year-end.
Looking ahead, management noted that it remains confident about the company’s long-term prospects, along with margin and cash flow expansion amid a rapid increase in cloud and other data-intensive workloads.
Buoyed by strong demand trends, WDCWDC-- expects fiscal first-quarter non-GAAP revenues of $4.1 billion (+/- $100 million), up 45% year over year at the midpoint.
With strong demand visibility, improving pricing and a technology roadmap spanning 40TB ePMR and upcoming 44TB HAMR products, WDC appears well positioned to sustain robust FCF generation in fiscal 2027.
However, cash-flow generation will hinge on the company’s ability to maintain pricing while converting strong demand into margin expansion. It also needs to watch out for intense competition in the space from the likes of Seagate Technology STX and NetApp NTAP, who are also vying for a larger share of the data storage market.
Strong FCF Numbers of Competitors
Seagate is one of WDC’s closest competitors. Like WDC, STX is also witnessing rapid top-line growth amid the AI boom. Fiscal fourth-quarter non-GAAP revenues of $3.6 billion increased 48% year over year. The data center segment accounted for 81% of total revenues, at $2.9 billion, representing a 17% sequential increase and 57% year-over-year growth. Non-GAAP operating profit climbed 39% sequentially to $1.6 billion, with a 44.6% operating margin.
Cash flow from operations during the fiscal fourth quarter was $1.3 billion compared with $1.1 billion in the previous quarter. Free cash flow increased 17% sequentially and 163% year over year to $1.1 billion. Seagate expects sequential cash flow growth in fiscal 2027, supported by strong demand, operational efficiency and disciplined capital spending.
NetApp continues to benefit from demand for modern all-flash arrays that support enterprise modernization and AI workloads. The company’s business model continues to generate sizable cash flow that supports investment and capital returns. In the fiscal fourth quarter, operating cash flow was $950 million and free cash flow was $900 million, while fiscal 2026 free cash flow was $1.87 billion.
Non-GAAP operating margin for fiscal 2026 was 30.2%, up 190 basis points year over year. The company returned $1.36 billion to shareholders in fiscal 2026 through dividends and repurchases, and increased its share repurchase authorization by $1 billion. Management expects to return up to 100% of free cash flow to its shareholders in fiscal 2027 and to reduce share count by a low single-digit percentage year over year.
WDC Price Performance, Valuation and Estimates
In the past month, shares have tanked 17.7% compared with the Zacks Computer-Storage Devices industry’s decline of 18.6%.
Image Source: Zacks Investment Research
In terms of forward price/earnings, WDC’s shares are trading at 21.04X, higher than the industry’s 9.1X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for WDC’s earnings for fiscal 2027 has been revised up roughly 5% to $18.85 over the past 60 days.
Image Source: Zacks Investment Research
Currently, Western DigitalWDC-- holds 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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