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Western Digital Corp. (WDC), Seagate Technology PLC (STX): These Hard Disk Makers Are Still a Bargain

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The decline in PC sales as a result of the rapid rise of devices such as tablets has not only hurt the stock price of PC manufacturers, but also producers of PC components and peripherals. Although hard disk makers have rallied enormously over the last year, two of them are still trading at extremely low multiples. With earnings on the rise, and strong momentum for these stocks, Western Digital Corp. (NASDAQ:WDC) and Seagate Technology PLC (NASDAQ:STX) still look like bargains at the moment.

Western Digital Corp. (NASDAQ:WDC)

Western Digital Corp.Western Digital Corp. (NASDAQ:WDC) (WD) primarily manufactures hard disk drives and storage solutions for use in computers and data centers. WD and Seagate Technology PLC (NASDAQ:STX) together control over 85% of the global hard disk drive market. Western Digital Corp. (NASDAQ:WDC) has a market cap of $14.7 billion, and yields 1.61%. In terms of earnings, the company has been doing well in recent years. It has beaten its quarterly estimates every quarter since Q1 2011, often by fairly wide margins. 2012 was a particularly good year, with large beats throughout the year.

For Q3 2013, the company announced earnings of $2.10 per share, beating the $1.77 consensus. However, this is down from $2.52 in the year-earlier period. Revenue came in at $3.8 billion, exceeding prior guidance. The company is seeing continuously strong industry demand primarily for its solid state and high-capacity drives for cloud networks. The average capacity of drives shipped increased by 35%, as the company is attempting to move more towards the non-PC related business, which is expected to contribute over 50% of revenue in fiscal 2013.

Despite surging almost 90% in the last twelve months, the stock is still trading at very low multiples. The P/E is only 7.86 times trailing earnings at the moment, with the forward P/E at more or less the same ratio. The price to sales is fairly low at 0.9, and the return on equity is fairly good at around 25%. The balance sheet is also in pretty good shape, with around $2 billion in debt and $4 billion in cash.

Seagate Technology PLC (NASDAQ:STX)

Seagate Technology PLC (NASDAQ:STX), based in Ireland, also produces hard disk drives for consumers and business. Its products see incorporation in enterprise servers and mainframes, as well as in computers and gaming consoles. The stock has a market cap of $15.36, with a forward yield of around 3.6%.

Seagate Technology PLC (NASDAQ:STX) hasn’t been doing as good a job as Western Digital Corp. (NASDAQ:WDC) in terms of beating its quarterly estimates, with misses in Q4 2012 and Q1 2013. Still, over the long term, things are going in the right direction, with annual EPS going from $1.40 in 2007 to $6.75 in 2012. For its latest report, the company delivered a beat of $0.11 on revenue of $3.5 billion. The company is focusing its R&D efforts mainly on cloud and mobile computing segments, and expects these markets to secure growth going forward. Nevertheless, the company is still seeing strong demand for its PC products.

Like WD, Seagate has been on a tear over the last twelve months gaining over 70%, while still trading at a very low multiple. With a P/E of 6.8 times trailing earnings, it’s even cheaper than WD. However, the price-to-sales is a little higher at 1.00. For comparison, competitor Toshiba trades at 21 times trailing earnings, although the price-to-sales is very low at 0.28. In Q2 2012, Toshiba had a market share of around 13% in the HDD market. Admittedly, this is a tough comparison, as Toshiba is a far more diversified electronics company, but it should be clear that WD and Seagate are trading at a discount.

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