EMC Market Research & Analysis Report
Updated Apr 29, 2015

Growth and Balance Sheet

The company reported record net income of $252 million, or 13 cents diluted earnings per share, for the first quarter of fiscal year 2015 ending March 31. That's down from net income of $392 million, or 19 cents diluted earnings per share for the same quarter last fiscal year. The decrease was primarily due to geo-political factors in Russia and China. Revenues for the first quarter were $5,613 million, up from $5,479 million for the same quarter last fiscal year. Company’s segments recoded mix revenue growth results in comparison to the same quarter last fiscal year. Information Storage revenue was virtually unchanged from the last quarter at $3,663 million; Enterprise Content Division revenue was down 10.4%; RSA Information Security was up 1.6% to $248 million; Pivotal revenue was up 10.2% to $54 million; and VMware Virtual Infrastructure revenue was up 11.7% to $1,510 million. Company’s gross margin decreased 160 basis points to 59.49% of sales from 61.09% in the first quarter of fiscal year 2014. The operation margin deteriorated to 6.75% of sales from 11.77% in the first quarter of fiscal year 2014. Net cash provided by operating activities for the quarter ended March 31, 2015 was $1,080 million, in comparison to $1,338 million for the same period last fiscal year. Cash and cash equivalents as of March 31, 2015 were $4,388 million, in comparison to $6,343 million as of March 31, 2014. EMC forecasted second quarter of fiscal year 2015 EPS are expected to be from 28 cents to 36 cents, compared to actual EPS of 28 cents for the second quarter of last fiscal year. The financial strength indicators of the company are at satisfactory levels. Company’s current ratio is 1.20 and the industry average ratio is 1.54. The quick ratio of 1.08 is also lagging behind the industry average of 1.27. The interest coverage ratio of 15.78 is in line with the industry average of 16.02. In terms of efficiency and effectiveness, the asset turnover ratio of 0.55 is worse than the industry average of 1.18; the inventory turnover ratio of 7.27 is also at worse levels than the industry average ratio of 19.63; and the ROE of 11.97% is falling short to the industry average of 15.7%. 

Valuation

EMC PE stands at 21.45 in line with the industry average of 21.86, and slightly above the stock market average represented by the S&P 500 average of 20.98. The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 18.80x to 25.89x trailing 12-month earnings. EMC's current Price/Sales of 2.1 is below the average of its industry of 3.53. EMC’s head to head comparison to its main competitors shows that the company has higher gross margin, and one that is double the industry average. The achieved operating margin of the company is the average result in comparison to the selected competitors, but it is well above the industry average. The quarterly revenue growth of the company is higher than the growth rates achieved of both of its direct competitors, but it is significantly below the industry average. The company trades at P/E ratio that is higher than the ratios of its peers, which is also the case with the P/S ratio. However, it should be noted that the PEG ratio is much lower (better) than its peers, which might justify the higher P/E ratio. EMC’s twelve trailing months EBITDA is $5.64 billion, lower result than the selected peers, and above the industry average EBITDA of $18.48 million. The stock is currently trading below its intrinsic value of $29.43, this suggests that the stock is currently undervalued at these levels. The beta of 1.50 implies higher volatility of the stock with respect to the S&P 500. EMC has shown favorable earnings consistency over the last five years. Company’s earnings have increased by 20.06% over the same period. The current quarter earnings in comparison to the same quarter last year have decreased by 31.58%. EMC’s Total Debt/Equity of 24.97 is above the required maximum, but it is below the industry average of 26.1. EMC’s current price levels are above the maximum level, 12.52% below the 52 week high of $30.92, and the technical analysis give neutral view of the stock. The majority of analyst ratings are buy. EMC has a dividend payout ratio of 41% and trailing annual dividend yield of 1.70%.

About EMC

EMC Corporation is a service providers to information technology (IT) operations to an as a service model (ITaaS). The Company supports a range of customers, including service providers, around the world in every industry, such as public and private sectors, as well as small business and individual consumers. The Company operates its business as three businesses, EMC Information Infrastructure, Pivotal and VMware Virtual Infrastructure. EMC Information Infrastructure provides a foundation for organizations to store, manage, protect, analyze and secure quantities of information, while at the same time improving business agility and increasing competitive advantage. These benefits can be greatly enhanced with virtualization. VMware Virtual Infrastructure provides virtualization infrastructure solutions. The Company’s subsidiary, Pivotal Software, Inc. (Pivotal) is a provider of application and data infrastructure software, agile development services and data science consulting.

Competitor Comparison

EMC Corporation (NYSE: EMC) N.V.

Highlights

EMC Corporation develops, delivers, and supports information infrastructure and virtual infrastructure technologies, solutions, and services. It offers enterprise storage systems and software. The stock closed yesterday’s trading session at $27.05. In the past year, the stock has hit a 52-week low of $25.05 and 52-week high of $30.92. The intrinsic value of the stock is above the current price. EMC has a market cap of $53.47 billion and is part of the Technology sector.

• Strong market position  
• Robust inorganic growth strategy   
• Consistent financial performance   

• Dependence on limited number of suppliers

EMC Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. EMC's 52 week high is $30.92, current price is $27.05, is 12.52% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 21.45, the average industry P/E ratio is 21.86 and is above the S&P 500 P/E ratio of 20.98.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders.  Insiders own 0.20% of EMC stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

EMC is trading in the range of $25.20 - $27.55 in the past 30 days. The stock has been showing support around the level of $25 and resistance in the $30 range. The stock is trading above the 50-Day Moving Average but below the 200-Day Moving Average. The RSI(14) is 56.50. As can be seen from the chart on page 1 the stock has seen some fair amount of ups and downs in the past year. Observable on the chart is a symmetrical triangle formation which is a continuation pattern. However, the price is currently on the upper boundary and if the pattern is broken we can expect a sharp reversal in the opposite direction. Our indicators give neutral view of EMC.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com are 15 Buy, 12 Outperform, and 11 Hold.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. EMC’s annual EPS for the last 5 years were 0.88, 1.1, 1.23, 1.33, and 1.32 this type of earnings action is favorable.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. EMC’s Total Debt/Equity of 24.97 is above the required maximum, but it is below the industry average of 26.1.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. EMC’s adjusted EPS growth for this quarter relative to the same quarter a year earlier is -31.58%, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. EMC’s annual earnings growth rate over the past five years is 20.06%, above our target.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.