Will EMC Surprise Q1 Earnings Backed by Big Data Business? - Analyst Blog

EMC CorporationEMC is set to report first-quarter 2015 results on Apr 22. Last quarter, the company posted a negative earnings surprise of 12.00%. The company has posted an average negative earnings surprise of 3.45% over the past four quarters.

Let's see how things are shaping up for this announcement.

Factors to Consider

We expect EMC's Big Data business to drive first-quarter results as it is a fast-growing segment. According to IDC's research, the Big Data and services market will grow at a compound annual growth rate of 26.4% to $41.5 billion through 2018, representing six times the growth rate of the overall IT market.

The company already has some clout at major enterprises, given its leadership position in the storage market, where it will be able to cross-sell its infrastructure solutions. Given the vast product portfolio, we believe EMC is well positioned to gain from Big Data growth over the long term.

Further, EMC benefits from strategic and technology alliances with a number of companies including Lenovo, SAP, Cisco, Brocade, Citrix, Microsoft, Equinix and Oracle. The company has bought back majority stake in Virtual Computing Environment (VCE) Company LLC, a joint venture with Cisco, along with investments from VMware VMW and Intel INTC . Since related costs will now be reported above the line and VCE being a loss-making business, the company expects the inclusion of the incremental portion of VCE to impact 2015 EPS by 4 cents.

However, this should be a long-term positive as it gives the company control over the converged infrastructure bundle (VBlock System) sold by the joint venture. Moreover, there have been rumors of a rift between Cisco and EMC following VMware's acquisition of software-defined networking provider Nicira (a Cisco competitor). So this could be the point where EMC crystallizes its strategy.

Nevertheless, the company has been witnessing increasing competition and pricing pressure over the last few quarters, which have been weighing on its margins. Further, unfavorable economic conditions have resulted in sluggish IT spending. This has increased pricing pressure from clients, which might adversely impact near-term financial performance.

Earnings Whispers

Our proven model does not conclusively show that EMC is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP : Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 59 cents. Hence, the difference is of 0.00%.

Zacks Rank : EMC's Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stock to Consider

A company that, according to our model, has the right combination of elements to post an earnings beat this quarter is Apple Inc. AAPL , with an Earnings ESP of +2.79% and a Zacks Rank #2 (Buy).

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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.

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

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