The Wind Is at Western Digital's Back

Just a year ago (and starting well before), hard-drive companies were the subject of incessant analyst remarks regarding the death of the PC and how their demise was non-negotiable. Of course, these companies weren't actually in dire straits; like most conscious multibillion dollar organizations, they had positioned themselves to adapt with the rest of the world. Western Digital (NASDAQ: WDC  ) is firmly in this camp, and the market has taken notice over the past year -- sending the stock up steadily nearly 75% since January of last year. Western Digital continues to generate strong cash flow and looks to grow in the coming periods as its various businesses are firing on all cylinders. Here's what investors need to know.

Recap
Western Digital came in ahead of analyst expectations last week when it delivered a bottom line of $2.19 per share -- a full dime above estimates. From the year-ago number, earnings grew just under 5%. Sales outperformed as well -- beating both analyst and internal expectations with $3.97 billion.

The company shipped more hard drives than it had in 2013's fiscal second quarter, but at an average selling price of $61 -- one dollar less. Hard drive prices have fluctuated heavily for some time, often frustrating analysts and investors who try to model out the business.

Sequentially, Western Digital lost a few fractions of a point in market share (it and Seagate Technology trade points back and forth) to 44.4%, but remains nearly one point higher than its year-ago status.

Cash machine
During the quarter, Western Digital printed out $557 million worth of free cash flow.

As noted by Zack's in a recent report, the company may not see substantial free cash flow growth as it invests more and more into product diversification and innovation. Western Digital continues to expand its presence in cloud storage, small and midsized business applications, and solid-state drives (SSDs). SSDs are particularly compelling as the market has increased its rate of adoption given SSDs efficiency compared to legacy hard drives.

The road ahead
In contrast to those now-myopic reports, Western Digital has a long-term runway for growth that keeps the stock attractive at 9.85 times projected forward earnings. Though the hard drive and storage industry is fiercely competitive (and always ripe for disruption), Western Digital has proved to remain nimble and able to adapt to industry shifts.

Investors interested in the stock need to have a long-term mind-set, as Western Digital remains a highly volatile business to own in the short-term. Despite its consistent free cash flow generation and product innovation, the market reliably freaks out every time PC shipment data shows "faster than expected" drops. We know PCs are on their way out and so does Western Digital. There is plenty of business to compensate and replace it. An investment in Western Digital today is a confortable bet on the ever-expanding need for storage in a data-driven world.

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