EMC Earns Enough

Ask any of those among our 82,000-strong CAPS community who have rated EMC (NYSE: EMC  ) whether the data storage specialist is undervalued, and chances are you'll get an enthusiastic answer. Behold:

Metric

EMC

CAPS stars (out of 5)

*****

Total ratings

2,296

Bullish ratings

2,194

Bull ratio

95.5%

Bearish ratings

102

Bear ratio

4.5%

Bullish pitches

397

Bearish pitches

21

Data current as of Jan. 29.

And yet this crowd could be measurably larger by this afternoon. Earlier today, EMC reported fourth-quarter and full-year results that, once again, look outstanding. Let's review.

For the fourth quarter, revenue was up 19% to $3.83 billion. Non-GAAP per-share net income -- that is, earnings excluding the effects of one-time charges and stock-based compensation -- was up 25%. GAAP earnings were up 33%.

For the full year, EMC improved sales by 19% and non-GAAP per-share earnings grew by 26.4%. Better still, gross margin was up 1.5 percentage points to 54.5%.

VMware (NYSE: VMW  ) , which is more than 80% owned by EMC, deserves thanks for a portion of the gains. The storage and systems virtualization specialist realized an 80% top-line gain in Q4. Roughly 13% of EMC's non-GAAP per-share earnings -- for the quarter and the year -- were derived from VMWare.

Therein lies the hope for EMC investors. Only 5% of the market for virtualization software is yet penetrated. If VMWare can fend off the likes of Microsoft (Nasdaq: MSFT  ) , Cisco (Nasdaq: CSCO  ) , and Red Hat (NYSE: RHT  ) and maintain a leadership position in the space, EMC investors will sow the rewards.

But that day could still be years away. Management's initial guidance for 2008 calls for 50% revenue growth in the VMware business and -- wait for it -- 9% growth in its core information infrastructure unit, which accounted for 90% of revenue in 2007. Not exactly the stuff of a growth stock, is it?

Nope, but that doesn't mean EMC is expensive. If we take management at its word, EMC today trades for roughly 15 times its $1.04 in projected 2008 non-GAAP net income. That's at worst reasonable, but it may prove cheap -- if, that is, you believe VMWare can fend off its well-financed competitors.

Get your clicks with related Foolishness:


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 564571, ~/Articles/ArticleHandler.aspx, 8/23/2014 3:37:45 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement