With shares of EMC Corporation (NYSE:EMC) trading at around $24.88, is EMC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
EMC has underperformed the market year-to-date, which has frustrated investors. However, the past month has been strong – the stock is up more than 7 percent. Investors had been waiting for a catalyst earlier in the year. After a Q1 where revenue increased 5.80 percent year-over-year but earnings declined 1.20 percent year-over-year, there wasn't a lot of reason for investor conviction. This led to EMC making a couple of moves. It now yields 1.60 percent, and it expanded its share repurchase program to $6 billion through December 31, 2015. It should be noted that $3.5 billion will be repurchased by the end of Q2 2014.
EMC will also increase its debt load in order to fuel growth. This may lead to acquisitions in the areas of cloud computing, big data, and/or IT. EMC has displayed strong debt management to date. Despite the companies renewed hunger for growth and the increasing debt, the balance sheet will remain strong for the foreseeable future. Therefore, R&D and innovation opportunities will remain.
NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!In regards to revenue, EMC has a compounded annual growth rate of 11.55 percent over the past four years. Revenue has consistently improved on an annual basis, but the pace of growth has slowed. The same pattern has been seen for NetApp (NASDAQ:NTAP), but on a different scale. Hewlett-Packard (NYSE:HPQ) has had a more difficult time as its revenue and earnings declined last year as well as last quarter on a year-over-year basis. Hewlett-Packard is struggling with a -11.60 percent profit margin. By comparison, NetApp has a profit margin of 7.98 percent, and EMC has a profit margin of 12.39 percent. NetApp is trading at 28 times earnings, and EMC is trading at 20 times earnings, making EMC look like the better value.
EMC Proven Solution may act as a catalyst going forward. This is private cloud computing. If successful, the rewards could be large. Cloud computing is booming, and this boom is expected to continue for many years. Storage is a concern for most businesses, and cloud computing offers businesses an opportunity to save time and money.
EMC's company culture is above average. According to Glassdoor.com, employees have rated their employer a 3.5 of 5, and 71 percent of employees would recommend the company to a friend. As far as leadership is concerned, 88 percent of employees approve of CEO Joe Tucci. This is an impressive number. It all starts at the top. If a good leader is in place, then the odds of success greatly increase.
In regards to analysts, they love the stock: 33 Buy, 7 Hold, 0 Sell.
On the negative side, there has been a decline in IT spending throughout the industry. Another negative is that operating margin for EMC declined 30 bps year-over-year to 18.9 percent. However, do the positives outweigh the negatives for EMC? That answer will be revealed soon.
Let's take a look at some important numbers prior to forming an opinion on this stock.
T = Technicals Are Strong
EMC has picked up some upside momentum over the past month. Can this momentum continue?
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| EMC | 7.20% | -1.11% | 1.54% | 34.95% |
| NTAP | 5.84% | 14.04% | 26.15% | -0.60% |
| HPQ | 13.99% | 73.40% | 13.34% | -44.21% |
At $24.88, EMC is trading above its averages.
| 50-Day SMA | 23.52 |
| 200-Day SMA | 24.09 |
E = Equity to Debt Ratio is Strong
The debt-to-equity ratio for EMC is stronger than the industry average of 0.20.
| Debt-To-Equity | Cash | Long-Term Debt | |
| EMC | 0.07 | 6.53B | 1.70B |
| NTAP | 0.48 | 6.95B | 2.25B |
| HPQ | 1.12 | 13.24B | 26.79B |
E = Earnings Have Been Strong
Earnings and revenue have consistently improved on an annual basis over the past three years.
| Fiscal Year | 2008 | 2009 | 2010 | 2011 | 2012 |
| Revenue ($) in millions | 14,876 | 14,026 | 17,015 | 20,008 | 21,714 |
| Diluted EPS ($) | 0.64 | 0.55 | 0.88 | 1.10 | 1.23 |
Looking at the last quarter on a year-over-year basis, revenue improved and earnings declined. Both revenue and earnings declined on a sequential basis. However, EMC is now getting more aggressive.
| Quarter | Mar. 31, 2012 | Jun. 30, 2012 | Sep. 30, 2012 | Dec. 31, 2012 | Mar. 31, 2013 |
| Revenue ($) in millions | 5,094.38 | 5,311.39 | 5,278.18 | 6,029.96 | 5,387.38 |
| Diluted EPS ($) | 0.27 | 0.29 | 0.28 | 0.39 | 0.26 |
Now let's take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
Conclusion
To put it simply, even if IT isn't as strong as in the past, demand for cloud computing is expected to increase, and data levels will intensify. EMC is aiming for simplification in all areas, and buyers of any product or service appreciates simplicity. Combining these factors with a 1.60 percent yield, an expanded share repurchase program, and quality leadership, EMC is an OUTPERFORM.
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