Lately, the tech sector has rather fallen out of favor with investors, with the Computer Hardware industry especially hard hit as consumers are making the switch to mobile computing devices. One need only look at Dell’s dramatic decline to witness the strength of this trend. These developments have left the industry as a whole trading at relatively low multiples. However, some hardware manufacturers are trading at simply unreasonable valuations. Hard disk drive manufacturers for example appear to have been punished unfairly for the weakness in PC sales, which make some of them an enticing buy at the moment. Western Digital Corp. (NASDAQ:WDC) looks particularly appealing.

Stock Overview

Western Digital is one of the world’s largest producers of data storage devices. In fact, together with Seagate Technology PLC (NASDAQ:STX), these firms more or less have a duopoly in the industry after Seagate acquired SAMSUNG ELECT LTD(F) (PINK:SSNLF)’s HDD business and Western Digital acquired Hitachi, Ltd. (ADR) (PINK:HTHIY)’s, leaving the two firms with a combined market share of 87%. Western Digital has a market cap of nearly $11 billion, and its stock is up over 33% in the last twelve months. The stock yields about 2.2% and has a beta of 1.43.

Earnings and Balance Sheet

A cursory glance at WD’s earnings makes their low valuation surprising. EPS has beaten analysts convincingly every quarter last year, and moreover, it has been rising steadily since the end of 2011. Q4 2012 EPS beat by a huge 35%, full-year EPS coming it at $7.60. Q2 2013 earnings are due on January 23, with an EPS estimate of $1.81 and revenues of $3.65 billion, representing increases of about 20% and 83% respectively. WD has $2.13 billion of debt on the books, with a total debt to equity ratio of 26.5, but over 3.5 billion dollars’ worth of cash. With a levered free cash flow of $1.54 billion, the firm has a solid balance sheet. Competitor Seagate has a higher level of debt to equity and less cash on hand.