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NASDAQ: WDC WESTERN DIGITAL CORP Report created Aug 10, 2020 Page 1 OF 6 Western Digital produces DRAM-based hard disk drives (HDDs) along with non-volatile memory (NVM) Argus Recommendations products, including solid data drives (SSDs) and mobile memory. WDC's products are used in cloud and on-premises data centers, desktop & notebook PCs, enterprise storage, video surveillance, networking products, DVRs, point-of-sale devices, and set-top boxes. In May 2016, WDC acquired NAND flash leader Twelve Month Rating SELL HOLD BUY SanDisk, expanding into the solid state drive (SSD) market, hybrid HDD-SSD solutions, and the storage systems business. Five Year Rating SELL HOLD BUY Analyst's Notes Sector Rating Under Market Over Weight Weight Weight Analysis by Jim Kelleher, CFA, August 7, 2020 Argus assigns a 12-month BUY, HOLD, or SELL rating to each ARGUS RATING: BUY stock under coverage. • BUY-rated stocks are expected to outperform the market (the • Pullback on weak guidance offers favorable entry point benchmark S&P 500 Index) on a risk-adjusted basis over the next year. • Western Digital sold off after missing top-line expectations for fiscal 4Q20 and issuing • HOLD-rated stocks are expected to perform in line with the below-consensus sales and adjusted EPS guidance for fiscal 1Q21. market. • We expect the digestion phase among data center customers to be a one- to two-quarter event. We • SELL-rated stocks are expected to underperform the market on a risk-adjusted basis. also look for noncompute markets, such as video and point-of-sale, to stabilize as the impact of the The distribution of ratings across Argus' entire company pandemic begins to diminish. universe is: 65% Buy, 34% Hold, 1% Sell. • We believe that WDC's long-term demand drivers, including cloud data center, SSDs for client and PC applications, and 5G, remain intact. Key Statistics • In our view, the recent underperformance of WDC shares offers an opportunity to initiate or increase Key Statistics pricing data reflects previous trading day's closing positions in a premier memory player, which should begin to benefit from the developing 5G cycle as price. Other applicable data are trailing 12-months unless well as from the ongoing digital transformation of the economy. Our target price is $62. otherwise specified Market Overview INVESTMENT THESIS Price $37.00 BUY-rated, Focus List selection Western Digital Corp. (NYSE: WDC) fell 16% in a Target Price $62.00 mixed market on 8/6/20 after the company missed top-line expectations for fiscal 4Q20 52 Week Price Range $27.40 to $72.00 and issued below-consensus sales and adjusted EPS guidance for fiscal 1Q21. While the Shares Outstanding 299.70 Million company is seeing pockets of demand strength, the formerly surging data center market Dividend $0.00 may be entering a period of inventory digestion, according to the company. Sector Overview Western delivered strong double-digit revenue growth to close its June 2020 fiscal year, Sector Technology led by 32% growth in Data Center Devices & Solutions. Pandemic-related trends, Sector Rating OVER WEIGHT including work & learn from home, virtual social interactions, and online gaming and Total % of S&P 500 Market Cap. 27.00% video streaming continue to drive surging data traffic, increasing the need for both Financial Strength high-availability and archival storage solutions. Financial Strength Rating MEDIUM-HIGH Western Digital guided sharply below consensus for fiscal 1Q21 revenue, however, Debt/Capital Ratio 50.1% while signaling that data center demand may slow after several quarters of strong growth. Return on Equity 9.8% Other parts of Western's business may also slow, including Client Devices, which is being Net Margin -1.5% Payout Ratio -- Market Data Pricing reflects previous trading week's closing price. Current Ratio 2.05 200-Day Moving Average Target Price: $62.00 52 Week High: $47.39 52 Week Low: $36.50 Closed at $43.10 on 7/31 Revenue $16.74 Billion Price After-Tax Income -$250.00 Million ($) Valuation 75 Current FY P/E 9.32 Prior FY P/E 12.21 Price/Sales 0.66 50 Price/Book 1.16 Book Value/Share $31.87 Market Capitalization $11.09 Billion Rating BUY HOLD SELL Forecasted Growth EPS 1 Year EPS Growth Forecast ($) 31.02% 5 Year EPS Growth Forecast 0.62 0.85 0.64 0.71 10.00% Quarterly 3.04 1.45 0.17 0.17 0.34 1.23 1.26 1.36 1.34 1.46 1.61 1.82 4.82 3.03 3.97 ( Estimate) 6.22 ( Estimate) 1 Year Dividend Growth Forecast Annual -100.00% Revenue ($ in Bil.) Risk Beta 1.55 Quarterly 5.0 4.2 3.7 3.6 4.0 4.2 4.2 4.3 3.8 4.0 4.2 4.5 4.7 5.0 5.2 5.5 Institutional Ownership 80.87% Annual 16.6 16.7 16.5 ( Estimate) 20.4 ( Estimate) FY ends Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Jun 30 2019 2020 2021 2022 Please see important information about this report on page 6 ©2020 Argus Research Company Argus Analyst Report NASDAQ: WDC WESTERN DIGITAL CORP Report created Aug 10, 2020 Page 2 OF 6 Analyst's Notes...Continued hit by retail store closures. The lower revenue is also hurting opportunity to initiate or increase positions in a premier memory operating leverage, leading management to issue 1Q21 adjusted player, which should begin to benefit from the developing 5G cycle EPS guidance that was well below consensus expectations. as well as from the ongoing digital transformation of the economy. In May, Western Digital suspended its quarterly dividend in a We are reiterating our BUY rating to a 12-month target price of move to maximize liquidity and cash on hand. The move came $62. WDC is appropriate for risk-tolerant investors apprised of the about two months after the hiring of David Goeckeler as CEO, volatility in memory-sensitive equities. which took effect on 3/9/20. Western's mix of NVM and DRAM RECENT DEVELOPMENTS products is similar to that of Micron, which does not pay a dividend. WDC management may have felt that keeping pace in WDC is down 41% year to-date in 2020 versus a 13% decline two distinct memory technologies would require cash that would for peers. WDC rose 72% in 2019 versus a 39% gain for the peer otherwise go to its dividend. group of computing, information processing, and storage We expect the digestion phase among data center customers to companies in Argus coverage. WDC declined 53% in 2018, versus be a one- to two-quarter event. We also look for noncompute a 15% pullback for peers. WDC stock rose 17% in 2017, slightly markets such as video and point-of-sale to stabilize as the impact of behind the 18% gain for peers. WDC rose 13% in 2016, just above the pandemic begins to diminish. On the client side of the business, the 12% peer-group gain. WDC's swing to SSD-based memory solutions bodes well for For fiscal 4Q20 (calendar 2Q20), Western Digital reported overall margins and growth going forward. Long-term demand revenue of $4.29 billion, which was up 18% year-over-year and drivers, including cloud data center, SSDs for client and PC 3% sequentially. Revenue came in below the $4.35 billion applications, and 5G remain intact, supplemented by what we midpoint of management's $4.25-$4.45 billion guidance range; expect to be permanent behavioral changes amid the digital revenue also lagged the consensus forecast of $4.35 billion. acceleration of the economy. Non-GAAP earnings came to $1.23 per diluted share, up sixfold As a result of the dividend cut and scaled-back guidance, WDC from $0.17 in the year-earlier quarter. The Street had been shares have underperformed the peer group and the overall stock modeling $1.21; adjusted EPS also exceeded the $1.20 midpoint of market. However, we believe WDC's end markets are largely intact management's $1.00-$1.40 guidance. and expect any digestion phase in data center to be limited. In our In fiscal 3Q20, WDC delivered its first positive annual revenue view, the recent underperformance of WDC shares offers an comparison in seven quarters; although revenue grew more Growth & Valuation Analysis Financial & Risk Analysis GROWTH ANALYSIS ($ in Millions, except per share data) 2015 2016 2017 2018 2019 FINANCIAL STRENGTH 2017 2018 2019 Revenue 14,572 12,994 19,093 20,647 16,569 Cash ($ in Millions) 6,354 5,005 3,455 COGS 10,351 9,559 13,021 12,942 12,817 Working Capital ($ in Millions) 6,712 6,182 4,660 Gross Profit 4,221 3,435 6,072 7,705 3,752 Current Ratio 2.55 2.39 2.22 SG&A 788 997 1,445 1,473 1,317 LT Debt/Equity Ratio (%) 113.1 95.3 102.8 R&D 1,646 1,627 2,441 2,400 2,182 Total Debt/Equity Ratio (%) 115.2 96.9 105.6 Operating Income 1,787 811 2,186 3,832 253 Interest Expense 35 240 821 616 412 RATIOS (%) Pretax Income 1,577 153 769 2,085 -287 Gross Profit Margin 31.8 37.3 22.6 Income Taxes 112 -89 372 1,410 467 Operating Margin 11.4 18.6 1.5 Tax Rate (%) 7 — 48 68 — Net Margin 2.1 3.3 -4.6 Net Income 1,465 242 397 675 -754 Return On Assets 1.3 2.3 -2.7 Diluted Shares Outstanding 237 242 296 307 292 Return On Equity 3.5 5.9 -7.0 EPS 6.18 1.00 1.34 2.20 -2.58 RISK ANALYSIS Dividend 1.80 2.00 2.00 2.00 2.00 Cash Cycle (days) 33.5 42.4 63.2 GROWTH RATES (%) Cash Flow/Cap Ex 5.9 5.0 1.8 Revenue -3.7 -10.8 46.9 8.1 -19.8 Oper. Income/Int. Exp. (ratio) 1.9 4.1 0.4 Operating Income -5.2 -54.6 169.5 75.3 -93.4 Payout Ratio 149.3 41.2 119.1 Net Income -9.4 -83.5 64.0 70.0 — EPS -7.5 -83.8 34.0 64.2 — The data contained on this page of this report has been Dividend 44.0 11.1 provided by Morningstar, Inc. (© 2020 Morningstar, Inc. Sustainable Growth Rate 9.6 3.8 7.4 -0.8 -4.8 All Rights Reserved). This data (1) is proprietary to VALUATION ANALYSIS Morningstar and/or its content providers; (2) may not be Price: High $113.88 $72.01 $95.77 $106.96 $65.31 copied or distributed; and (3) is not warranted to be Price: Low $57.94 $34.99 $68.58 $33.83 $35.02 accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or Price/Sales: High-Low 1.9 - 0.9 1.3 - 0.7 1.5 - 1.1 1.6 - 0.5 1.2 - 0.6 losses arising from any use of this information. Past P/E: High-Low 18.4 - 9.4 72.0 - 35.0 71.5 - 51.2 48.6 - 15.4 —-— performance is no guarantee of future results. This data Price/Cash Flow: High-Low 13.7 - 7.0 9.8 - 4.7 7.0 - 5.0 8.6 - 2.7 17.5 - 9.4 is set forth herein for historical reference only and is not necessarily used in Argus’ analysis of the stock set forth on this page of this report or any other stock or other security. All earnings figures are in GAAP. Please see important information about this report on page 6 ©2020 Argus Research Company Argus Analyst Report NASDAQ: WDC WESTERN DIGITAL CORP Report created Aug 10, 2020 Page 3 OF 6 Analyst's Notes...Continued substantially in 4Q20 than in 3Q20, investors were not in a point-of-sale devices (cash registers), is not crashing but is celebratory mood. Western Digital, which surprised the Street with operating at a reduced level. Finally, distributors are being cautious a dividend suspension in May, again surprised investors with its about inventory, further pressuring the company's outlook. fiscal 1Q21 guidance. New CEO David Goeckeler noted that Western Digital had The memory company provided midpoint revenue guidance of successfully managed through an 'unpredictable time' with limited $3.8 billion, compared with prereporting consensus expectations of business impact from the pandemic. The company invested to $4.36 billion. At management's guidance midpoint, revenue would overcome manufacturing and logistical challenges that were most be down 6% year-over-year, breaking the two-quarter string of acute in the hard drive business. positive annual comparisons, and down 11% sequentially. Off the Despite strong year-over-year revenue gains in client and data sharply lower revenue base, management forecast midpoint center markets, demand was mixed in the quarter amid ongoing non-GAAP EPS of $0.55 for 1Q21. Earnings at that level would customer uncertainty. While data center demand was driven by still double the year-earlier tally, but the consensus came into the surging traffic from homebound workers and consumers, and the 4Q20 report anticipating guidance of $1.30-$1.35. client SSD and HDD businesses benefited from spiking notebook Investors were aware that Western Digital was shepherding its PC sales, the noncompute business was impacted by lockdowns at cash. Additionally, Western's mix of NVM and DRAM products is many brick-and-mortar stores. similar to that of Micron, which does not pay a dividend. Investors Despite near-term headwinds, the company continues to invest were unprepared for the extent of downbeat guidance, however. in its NAND flash offerings. The CEO cited migration to flash Discussing the soft top-line outlook and specifically the data center within game consoles as yet another example of flash penetrating market, management believes that the company is definitely deeper into the edge and endpoint markets. WDC launched its entering a digestion phase. Western is coming off three very strong 112-layer flash product, BiCS5, in retail applications in fiscal Exabyte shipments into the data center market, and demand signals 4Q20. Prior-generation BiCS4 (96-layer) represented over 60% of from customers are down for the next one to two quarters. bits shipped in fiscal 4Q. On the HDD side, the company is on The noncompute market has specific challenges as well. track to ship its 18 Tb drive in the current quarter. Video-related sales are being impacted by shrinking global demand WDC has maintained its partnership with the former Toshiba in this formerly fast growing niche; the slowdown could be driven memory business, now known as Kioxia. During FY20, WDC by COVID-19. Retail, where WDC sells memory products for shipped its first production wafers from its K1 fab, the new Peer & Industry Analysis The graphics in this section are designed to P/E allow investors to compare WDC versus its Growth industry peers, the broader sector, and the WDC vs. market as a whole, as defined by the Argus Market Universe of Coverage. 17.5 WDC vs. MU Sector • The scatterplot shows how WDC stacks More Value More Growth up versus its peers on two key characteristics: long-term growth and Price/Sales value. In general, companies in the lower 15 WDC vs. left-hand corner are more value-oriented, Market while those in the upper right-hand corner NTAP WDC vs. are more growth-oriented. Sector 12.5 More Value More Growth • The table builds on the scatterplot by displaying more financial information. Price/Book • The bar charts on the right take the WDC vs. analysis two steps further, by broadening Market the comparison groups into the sector 10 WDC vs. level and the market as a whole. This tool WDC Sector is designed to help investors understand STX More Value More Growth Value P/E how WDC might fit into or modify a PEG 9 10 diversified portfolio. 5-yr Growth Rate(%) WDC vs. Market 5-yr Net 1-yr EPS WDC vs. Market Cap Growth Current Margin Growth Argus Sector More Value More Growth Ticker Company ($ in Millions) Rate (%) FY P/E (%) (%) Rating MU Micron Technology Inc. 54,161 10.0 17.1 11.2 85.3 BUY 5 Year Growth STX Seagate Technology PLC 11,645 10.0 8.9 9.6 10.8 BUY WDC vs. WDC Western Digital Corp. 11,089 10.0 9.3 -1.5 56.7 BUY Market WDC vs. NTAP NetApp Inc 9,499 9.0 13.6 15.1 41.0 HOLD Sector Peer Average 21,598 9.8 12.2 8.6 48.4 More Value More Growth Debt/Capital WDC vs. Market WDC vs. Sector More Value More Growth Please see important information about this report on page 6 ©2020 Argus Research Company Argus Analyst Report NASDAQ: WDC WESTERN DIGITAL CORP Report created Aug 10, 2020 Page 4 OF 6 Analyst's Notes...Continued manufacturing facility for 3D BiCS flash memory. Another For fiscal 1Q21, Western forecast revenue of $3.7-$3.9 billion, highlight for the year was the ramp-up of WDC's enterprise SSD compared to $4.04 billion a year earlier. At the guidance midpoint product line. In 4Q20, enterprise SSD revenue grew 70% of $3.8 billion, revenue would be down 6% annually and 11% sequentially; WDC's market share in this business is now in the sequentially. WDC projected a non-GAAP gross margin of double digits, according to management. 25%-27%, operating costs of $700-$720 million, and non-GAAP For 4Q20, WDC's nonvolatile memory (NVM) revenue of EPS of $0.45-$0.65. At the guidance midpoint of $0.55, fiscal $2.24 billion (52% of total) rose 49% year-over-year and 9% 1Q21 non-GAAP EPS would be up sharply from $0.34 a year sequentially. Non-HDD revenue consists mainly of nonvolatile earlier; however, the Street had been modeling a much higher memory in various applications, including embedded (for $1.32. smartphones) and removable (memory cards), as well as client and We are cutting our fiscal 2021 non-GAAP diluted EPS forecast enterprise SSDs. NAND flash exabyte shipments rose 8% to $3.97 from $6.18. We are setting an FY22 non-GAAP EPS sequentially, marking a fourth straight quarter of sequential forecast of $6.22. Our estimates are subject to revision. momentum and pointing to accelerating demand for NAND FINANCIAL STRENGTH & DIVIDEND memory. HDD revenue of $2.05 billion (48% of total) fell 4% Our financial strength rating for WDC is Medium-High. The year-over-year and 3% sequentially. HDD unit shipments of 23.1 change in dividend policy has not resulted in a change in financial million decreased 17% year-over-year and 5% sequentially. HDD strength rating. exabytes sold declined 2% sequentially. In fiscal 2017, WDC paid in full its $3 billon bridge loan related HDD ASP of $87 per drive was up 2% sequentially and 17% to the SanDisk acquisition, reducing both cash and indebtedness by annually, reflecting a better mix of high-capacity drives for large $3 billion. WDC also repaid its euro term loan B in full, and net commercial client markets (servers and desktop PCs), capacity debt decreased by $500 million in fiscal 4Q17. enterprise, and cloud service providers. Consistent with the Cash was $3.05 billion at the end of fiscal 2020, reduced by favorable ASP but unfavorable unit trend, HDD shipments in debt repayments and buybacks. Cash was $3.49 billion at the end 4Q20 fell 24% in client compute HDDs and 25% in noncompute, of FY19, $5.06 billion at the end of FY18, $6.39 billion at the end but rose 10% in enterprise HDDs. of FY17, $8.46 billion at the end of FY16, and $5.29 billion at the In terms of customer categories served across both HDDs, SSDs, end of FY15. and other product categories, revenue from client devices & Debt was $9.58 billion at the end of fiscal 2020. Debt was solutions (a combined 61% of total) was up 10% annually, led by $10.6 billion at the end of FY19, $11.3 billion at the end of FY18, record SSD shipments. Revenue from data center devices & $13.1 billion at the end of FY17, and $17.2 billion at the end of solutions (39% of total) was up 32% year-over-year as enterprise FY16. Prior to the SanDisk closing, debt was $2.57 billion at the SSDs continued to gain momentum and 14 Tb HDDs saw strong end of FY15. data center demand. Debt/cap was 50.1% at year-end FY20. Debt/cap was 50.9% at We expect the digestion phase at data center customers to prove year-end FY19, 49.2% at the end of FY18, 54.3% at the end of to be a one- to two-quarter event. We also look for noncompute FY17, 55.6% at the end of FY16, and 21.8% at the end of FY15. markets such as video and point-of-sale to stabilize as the impact of Cash flow from operations was $824 million in FY20. Cash the pandemic diminishes. On the client side of the business, WDC's flow from operations was $1.55 billion in FY19, $4.21 billion in swing to SSD-based memory solutions bodes well for overall FY18, $3.44 billion in FY17, $2.0 billion in FY16, and $2.3 billion margins and growth going forward. Long-term demand drivers, in FY15. including cloud data center, SSDs for client and PC applications, In September 2012, WDC announced a capital allocation and 5G remain intact, supplemented by what we expect to be program in which it pledged to return 50% of free cash flow to permanent behavioral changes amid the digital acceleration of the investors in the form of dividends and share buybacks. At that pandemic economy. time, the board authorized a quarterly dividend of $0.25 per common share. In February 2015, WDC hiked its quarterly EARNINGS & GROWTH ANALYSIS dividend to $0.50 per common share. For fiscal 4Q20 (calendar 2Q20), Western Digital reported In April 2020, WDC suspended its dividend with a plan to revenue of $4.29 billion, which was up 18% year-over-year and invest more cash in the business and further reduce indebtedness. 3% sequentially. Revenue came in below the $4.35 billion The company paid a partial dividend of $1.50 per share in FY20. midpoint of management's $4.25-$4.45 billion guidance range; For now, we do not expect the company to pay a dividend in FY21 revenue also lagged the consensus forecast of $4.35 billion. or FY22. The non-GAAP gross margin expanded sequentially to 28.9% MANAGEMENT & RISKS in fiscal 4Q20 from 27.9% in fiscal 3Q20 and from 24.2% a year earlier. The non-GAAP operating margin widened to 12.3% from On 3/5/20, Western Digital appointed David Goeckeler as its 10.2% in 3Q20 and from 4.4% a year earlier. new CEO, effective 3/9/20. Steve Milligan, who served as CEO Non-GAAP earnings came to $1.23 per diluted share in 4Q20, since 2013, will remain in an advisory role until September 2020. up sixfold from $0.17 in the year-earlier quarter. The Street had Michael Cordano is the COO and Bob Eulau is CFO. been modeling $1.21; adjusted EPS exceeded the $1.20 midpoint of CEO Goeckeler most recently served as EVP and GM of Cisco's management's $1.00-$1.40 guidance range. Networking and Security business. We believe his deep engineering For all of FY20, revenue of $16.7 billion rose 1% from FY19. and business development strategy in these areas aligns with Non-GAAP diluted EPS totaled $3.03, down 37% from $4.82 in Western's swing away from the client (PC) market and to memory FY19. and mass storage markets in cloud, large enterprise, data center Please see important information about this report on page 6 ©2020 Argus Research Company Argus Analyst Report NASDAQ: WDC WESTERN DIGITAL CORP Report created Aug 10, 2020 Page 5 OF 6 Analyst's Notes...Continued and carrier infrastructure. WDC shares as a chance to build or initiate positions in a premier Cutting the dividend usually sends a message that a company memory player. WDC is appropriate for risk-tolerant investors has a strained cash situation or a fast-deteriorating operational apprised of the volatility in memory-sensitive equities. outlook; WDC has neither. We believe the company eliminated its On August 7, BUY-rated WDC closed at $36.99, down $0.31. dividend so it could invest in its two main businesses of NVM and DRAM memory, and better compete with Micron. WDC also looks to reduce earnings volatility by reducing its interest payments on its debt. A main risk for Western Digital, as for other memory companies, is the possibility of a general economic downturn and a corresponding dip in demand for networking gear related to the pandemic. We believe that Western Digital has the financial strength, market leadership, and growth characteristics to weather this storm and emerge a stronger player. Further, it is serving multiple markets, including data center and compute, that are growing amid the shelter-at-home movement. Volatility in memory pricing was accentuated when WDC reported fiscal 4Q18 results. Pricing declines are the norm in the memory industry, and memory company stocks reprice based on the magnitude and pace of that decline. We believe that the long-term outlook for memory is favorable, but expect this niche to remain more volatile than technology stocks in general. The acquisition of SanDisk carried integration challenges, which have largely been met. We did not regard the deal as unduly expensive, priced at 3.2-times revenue and 10.6-times EBITDA. Other risks for Western Digital are largely related to conditions in the hard disk drive (HDD) market, which is highly volatile. Unexpected changes in end-user markets (PCs, servers, storage and consumer electronics) can hurt manufacturers' pricing and margin structures. Competition is fierce, not only from U.S.-based participants, but also from Asian providers. Going forward, we expect WDC to use cash generated from the structurally declining HDD market to fund its expansion into solid-state memory. COMPANY DESCRIPTION Western Digital produces DRAM-based hard disk drives (HDDs) along with non-volatile memory (NVM) products, including solid data drives (SSDs) and mobile memory. WDC's products are used in cloud and on-premises data centers, desktop & notebook PCs, enterprise storage, video surveillance, networking products, DVRs, point-of-sale devices, and set-top boxes. In May 2016, WDC acquired NAND flash leader SanDisk, expanding into the solid state drive (SSD) market, hybrid HDD-SSD solutions, and the storage systems business. VALUATION WDC shares are trading at 9.3-times our FY21 non-GAAP EPS estimate and at 5.9-times our projection for FY22. The average FY21-FY22 multiple of 7.6 is below the historical five-year average multiple of 9.9. Comparable historical valuation points to a value in the upper $60s, in a stabilizing trend and well above current levels. Peer indicated value in the mid-$60s suggests that WDC is undervalued at current prices. Discounted free cash flow valuation signals value around $130, also in a stabilizing trend. Blending these methods, we arrive at a fair value of approximately $107 per share, in a stable trend though much higher than current levels. Appreciation to our 12-month target price of $62 points to a risk-adjusted return that is much higher than our forecast return for the broad market. We continue to regard any weakness in Please see important information about this report on page 6 ©2020 Argus Research Company Argus Analyst Report NASDAQ: WDC METHODOLOGY & DISCLAIMERS Report created Aug 10, 2020 Page 6 OF 6 About Argus Argus Research, founded by Economist Harold Dorsey in 1934, And finally, Argus’ Valuation Analysis model integrates a has built a top-down, fundamental system that is used by Argus historical ratio matrix, discounted cash flow modeling, and peer analysts. This six-point system includes Industry Analysis, Growth comparison. Analysis, Financial Strength Analysis, Management Assessment, THE ARGUS RESEARCH RATING SYSTEM Risk Analysis and Valuation Analysis. Argus uses three ratings for stocks: BUY, HOLD, and SELL. Utilizing forecasts from Argus’ Economist, the Industry Analysis Stocks are rated relative to a benchmark, the S&P 500. identifies industries expected to perform well over the next • A BUY-rated stock is expected to outperform the S&P 500 on one-to-two years. a risk-adjusted basis over a 12-month period. To make this The Growth Analysis generates proprietary estimates for determination, Argus Analysts set target prices, use beta as the companies under coverage. measure of risk, and compare expected risk-adjusted stock In the Financial Strength Analysis, analysts study ratios to returns to the S&P 500 forecasts set by the Argus Market understand profitability, liquidity and capital structure. Strategist. During the Management Assessment, analysts meet with and • A HOLD-rated stock is expected to perform in line with the familiarize themselves with the processes of corporate management S&P 500. teams. • A SELL-rated stock is expected to underperform the S&P 500. 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