Should You Jump On the EMC Bandwagon?

With shares of EMC Corporation (NYSE:EMC) trading at around $24.35, 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

EMCThere is a widespread belief that big-tech companies will disappoint next quarter. This relates to the fiscal cliff deal being completed too late, which prevented corporate clients from spending as much as they usually would. Cantor Fitzgerald feels that this will lead to challenging sentiment for EMC in the coming weeks, but that it should ultimately be looked at as a buying opportunity. Cantor Fitzgerald reiterated its Buy rating for EMC, and decreased its target price from $30 to $28.50. Currently, analysts are in love with EMC. There are 36 Buy recommendations, 5 Hold recommendations, and 0 Sell recommendations.

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There has been consistent and significant insider selling for EMC over the past six months. The majority of that selling took place recently, which means that it could have related to fiscal cliff concerns. Some people might say it related to Christmas gifts, but unless insiders planned on purchasing several luxury yachts, that wasn’t the case. There were also several large insider sales prior to fiscal cliff concerns gaining momentum. This shouldn’t scare anyone away from EMC since it was most likely profit taking, but it should be mentioned.

EMC has a Trailing P/E of 19.94, a Forward P/E of 12.67, double-digit margins, and over $6.5 billion in operating cash flow. Those are some impressive numbers, but they’re not the most important ones. Let’s take a look at the most important numbers for EMC.  

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for and balance sheet for EMC are strong. As you can see below, that’s common for the industry.

Debt-To-Equity

Cash

Long-Term Debt

EMC

0.07

$5.47 Billion

$1.71 Billion

NTAP

0.28

$5.57 Billion

$1.23 Billion

STX

0.81

$2.47 Billion

$2.87 Billion

 

T = Technicals on the Stock Chart Are Mixed

EMC has outperformed NetApp (NASDAQ:NTAP) over the past three years, but Seagate Technology (NASDAQ:STX) stole the show. You could also say Seagate Technology added salt to the wound with its dividend payments. Seagate Technology currently yields 4.80 percent.

1 Month

Year-To-Date

1 Year

3 Year

EMC

-3.38%

-3.83%

10.54%

36.23%

NTAP

3.52%

1.58%

-3.52%

2.19%

STX

11.70%

3.39%

81.05%

86.53%

 

At $24.33, EMC is currently trading below all its averages.  

50-Day SMA

24.77

100-Day SMA

25.77

200-Day SMA

26.03

 

E = Earnings Have Been Steady

EMC has been steadily improving earnings since 2009. It’s also important to note that EPS for 2011 exceeded EPS for 2007, which is difficult to find in any industry.

2007

2008

2009

2010

2011

Revenue ($)in billions

13.23

14.88

14.03

17.02

20.01

Diluted EPS ($)

0.74

0.61

0.53

0.88

1.10

 

When we look at last quarter on a YoY basis, we see an increase in revenue and earnings.

9/2011

12/2012

3/2012

6/2012

192012

Revenue ($)in billions

4.98

5.57

5.09

5.31

5.28

Diluted EPS ($)

0.27

0.38

0.27

0.29

0.28

 

T = Trends Support the Industry

Some people are nervous about new technologies that will allow companies to put more data on equipment they already own. This is a justifiable concern, especially since EMC declined to comment. However, EMC is growing globally in the data storage space, and the company is growing fast in the cloud computing and IT spaces. There are always going to be scares to any industry, but not many of them end up coming to fruition.

Conclusion

EMC has displayed solid stock performance over the past few years, debt management is superb, the company is growing organically and through acquisitions, and the street loves the stock, which plays a role.

EMC is an OUTPERFORM.

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