Western Digital: Cash flow and buybacks

We continue to recommend Western Digital (WDC), which designs and makes hard disk drives in our Prime Time value portfolio.

The company's incredible cash flow allows the company to comfortably spread out capital between R&D, acquisitions, and shareholders.

Its free cash flow of more than $2 billion this past year is calculated after spending over a billion dollars on R&D. In previous years it has used the excess cash for acquiring and investing for future growth.

WDC's share repurchase program this past year exceeded $600 million. The company continued its commitment to buyback stock, with an announcement of an additional $1.5 billion of repurchases.

During the latest quarter, the company utilized $243 million to buy back 5.2 million shares of common stock. WDC also recently announced a $0.25 quarterly dividend. This represents an annual dividend yield of more than 2.0%.

WDC operations and supply chains were hampered by the aftermath of the earthquake/tsunami in Japan. Flooding in Thailand also greatly impacted the company resulting in several hundred million dollars of losses.

Nevertheless, the company recovered to achieve record earnings in fiscal year 2012. Revenue exceeded $12 billion, representing a 30% increase from the year prior.

Net income also reached record levels at $1.6 billion, more than double the prior year's results. They ended the latest quarter (March 2013) with total cash and cash equivalents of $4.1 billion.

WDC completed one of the industry's largest transactions recently, with its $4.7 billion acquisition of Hitachi Global Storage Technologies. WDC is perennially among the leaders in HDD units shipped. Its acquisition of Hitachi Global will only improve future prospects and help sustain its annual growth.