Earnings Preview: EMC Corp. - Analyst Blog

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EMC Corp ( EMC ) is set to release its fiscal first quarter 2012 results before the opening bell on April 19, 2012. In the run up to the earnings results, no substantial movement in analysts' estimates for the quarter was noticed.

Prior Quarter Recap

EMC reported fourth quarter 2011 earnings per share ( EPS ) of 42 cents, up 16.1% year over year and ahead of the Zacks Consensus Estimate by a couple of cents. The better-than-expected results were driven by robust growth in the top line during the quarter, arising from the strong demand for EMC products globally.

Revenues increased 14.0% year over year to $5.57 billion in the fourth quarter, surpassing the Zacks Consensus Estimate of $5.49 billion. This growth was primarily attributed to continued strong demand for EMC's storage, data protection, virtualization and security products and services in the quarter.

For further details please read: EMC Beats on Strong Revenues

Fiscal 2012 Expectations

EMC expects revenues of approximately $22.0 billion for fiscal 2012 (in line with the Zacks Consensus Estimate). Non-GAAP operating income is expected to grow 17.0% for fiscal 2012. Non-GAAP net income is expected to be approximately $3.7 billion for the full year. EMC projects EPS of $1.70 for fiscal 2012, excluding 30 cents related to stock-based compensation.

The current Zacks Consensus Estimate is pegged at $1.43 per share for fiscal 2012 (includes stock based compensation), which is slightly higher than management's outlook (including 30 cents in stock-based compensation; the company's guidance translates to an EPS of $1.40 for fiscal 2012). EMC also expects to repurchase shares worth $700.0 million in fiscal 2012, which will boost EPS growth going forward.

Estimate Revision Trend

In the last thirty days, only one out of the 7 analysts covering the stock raised estimates for the current quarter, while none moved in the opposite direction. The Zacks Consensus Estimate for the quarter's EPS increased by a penny to 29 cents per share.

Likewise, for fiscal 2012, one upward revision was noticed from the 8 analysts covering the stock. Despite the positive revision, the Zacks Consensus Estimate for fiscal 2012 has remained static at $1.43 per share over the last thirty days.

Analysts expect EMC to beat expectations aided by the new storage contracts as the company holds a dominating position in this segment. Moreover, increasing adoption of cloud computing technology and expansions in the 'Big Data' segment will boost demand for EMC's virtual infrastructure products, which in turn is expected to drive top-line growth going forward.

Our Take

We note that EMC has performed consistently during the last 4 quarters with its average earnings surprise being 2.94%. For the to-be-reported quarter, we expect the company to beat the Zacks Consensus by the same magnitude.

We believe that EMC's vast product portfolio, which has products suitable for any kind of budget, will boost its market share going forward. Moreover, with strong balance sheet and incremental revenues, the company's strategic acquisitions will have a positive impact in the long run.

Besides, the increasing adoption of cloud computing technology will significantly drive the demand for EMC's virtual infrastructure products, which in turn is expected to be accretive to top-line growth going forward. Further, EMC's leading position in the emerging economies of the Asia-Pacific and Africa will boost its profitability, as higher revenues from these markets will offset a sluggish growth in the Americas and Western Europe going forward.

However, increasing competition from companies such as IBM Corp. ( IBM ) , Hewlett Packard Co. ( HPQ ) , NetApp Inc. ( NTAP ) and Dell Inc. ( DELL ) remains a headwind going forward.

We have a Neutral recommendation on EMC Corp over the long term (for the next 6 to 12 months). Currently, EMC Corp has a Zacks #1 Rank, which implies a 'Strong Buy' rating on short-term basis.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: DELL , EMC , EPS , HPQ , IBM

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