Everywhere you turn, you read about how computer makers are in trouble. Both
, for example, recently conceded that PC sales are steadily falling as more consumers buy tablet computers like the iPad.
That should spell trouble for this company, which is a leading producer of hard disk drives for many PC manufacturers. But
(WDC - Get Report)
saw trouble coming a few years ago and took decisive action that is now paying off smartly. The company went out and bought some key rivals such as Hitachi, which not only helped it to maintain market share, but also gave it better pricing leverage when dealing with PC makers.
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The numbers speak for themselves. Free cash flow, which had never exceeded $1 billion in any year in the company's history, has topped that figure in two of the past three years. Indeed when Western Digital's fiscal fourth quarter results (ended June) were announced a few weeks ago, that free cash flow metric hit a stunning $2.35 billion.
Of course the low P/E ratio suggests that investors think the good times will soon end. Not so, says the company. Management is targeting $10 in EPS in the fiscal year that just began, well ahead of the $8.29 consensus forecast in pace in late July and higher than the $8.61 a share earned in fiscal 2012. All of those profits are going towards a big stock buyback which has been shrinking the shares count by at least 5% per quarter recently.