Foolish Forecast: EMC Pats Self on Back

So you like data storage company EMC (NYSE: EMC  ) , do you? Well here's some data we have lying around: The premier provider of storage services hasn't missed a Wall Street earnings estimate in nearly six years. Anybody want to bet it's going to start underperforming tomorrow? EMC reports its Q4 and full-year 2007 numbers bright and early Tuesday morning.

What analysts say:

  • Buy, sell, or waffle? Twenty-five analysts follow this electronic archivist, giving it 17 buy ratings and eight holds.
  • Revenues. On average, analysts predict 14% quarterly sales growth to $3.66 billion.
  • Earnings. Profits are predicted to grow 29%, to $0.22 per share.

What management says:
Citing "Solid global execution" in Q3 and "broad opportunities in the global marketplace" going forward, CEO Joe Tucci seems more than optimistic about his firm's prospects. Going forward, Tucci promised to continue "investing in research and development" (which you may recall had been a concern of mine, but one recently laid to rest) and "expanding into the fastest-growing global markets."

CFO David Goulden agreed, giving EMC a corporate self-pat on the back for "crisp business and financial execution around the world, with operating income growing faster than revenue and free cash flow more than doubling compared to the same period a year ago."

What management does:
The numbers bear out the C-level execs' boasts. Thanks to cost of goods sold rising less swiftly than sales (14% vs. 18%, year-to-date), EMC has been able to increase its operating costs (including R&D) faster than sales, yet still grow its operating and net margins. At last report, EMC's operating profitability exceeded that of rivals Symantec (Nasdaq: SYMC  ) and Hewlett-Packard (NYSE: HPQ  ) , and continued to gain on IBM (NYSE: IBM  ) .

The firm in this space that EMC will have the most trouble overtaking: Its own subsidiary, VMware (NYSE: VMW  ) , which boasts a sterling 17% operating margin.





























All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Yet one thing nags at me still. If everything's going great-guns at EMC, why is the CEO possibly cashing out? According to one recent 8-k filing, "Joe Tucci, Chairman, President and Chief Executive Officer of EMC Corporation ... entered into a pre-arranged stock trading plan [facilitating the future sale of] up to 281,549 shares of EMC common stock during the remainder of the current quarter and may sell up to 889,316 shares during the first half of fiscal year 2008. Mr. Tucci adopted the plan as part of a long-term strategy to gradually diversify his investments in a disciplined manner."

"Gradually diversify"? According to its SEC filings, Tucci only owns a tenth of a percent of the company as it is -- 2.1 million shares. Now he's planning to sell off more than half his stake within the next six months? That might make sense if Tucci was expecting a windfall of stock options to be showered his way in the very near future, but according to a November 8-k filing, Tucci himself requested that he receive "no equity awards in 2007," and he will not be getting such awards any "sooner than the third quarter of 2008."

Such things as these make a Fool say: "Hmm."

So are 10b5-1 "pre-arranged stock trading plans" necessarily bad for outside shareholders? Nope. Not necessarily. Why, just look how Google (Nasdaq: GOOG  ) and Blue Nile (Nasdaq: NILE  ) have performed in recent years, and see what we were saying about their 10b5-1 plans when they were announced:

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