For three straight quarters, EMC
What analysts say:
- Buy, sell, or waffle? Twenty-five analysts follow this electronic archivist, the same as last quarter. However, sentiment has soured somewhat. Only 15 analysts now rate EMC a buy, and holds have grown to 10.
- Revenues. On average, analysts predict 19% sales growth to $3.07 billion.
- Earnings. Profits are predicted to rise 25% to $0.15 per share.
What management says:
Back in April, CEO Joe Tucci described EMC's first-quarter results as a "solid start" to 2007. Indeed, sales rose 17% year over year, and profits per diluted share grew at more than twice that rate. But the best number of all was free cash flow. At $586 million for the quarter, it eclipsed last year's Q1 number by 37%.
What management does:
As sales grow, EMC continues to maintain an admirably consistent gross margin of 53.6% on a rolling basis -- for three straight quarters now. However, operating margins are sliding on the back of faster-rising selling, general, and administrative costs, and (finally) increased R&D expenditure. And the debt that EMC took on as part of its RSA acquisition is requiring interest payments that are putting additional hurt on the net.
|
12/05 |
3/06 |
6/06 |
9/06 |
12/06 |
3/07 |
|
|---|---|---|---|---|---|---|
|
Gross |
53.7% |
53.9% |
53.8% |
53.6% |
53.6% |
53.6% |
|
Operating |
16.4% |
16.7% |
16.4% |
16.5% |
16.2% |
15.7% |
|
Net |
11.7% |
11.4% |
11.0% |
9.2% |
11.0% |
10.9% |
One Fool says:
Credit for much of EMC's growth goes to its VMware "virtual storage" division, which nearly doubled its revenues year over year in Q1. This division continues to move down the path to IPO-hood, as management tries to "unlock" the value of its parts from the discount imposed on their sum. But might it have the opposite effect?
Consider: Lucky Intel
On the one hand, that bodes well for EMC's desire to unlock VMware's hidden value. The shares will be trading at roughly 10 times trailing revenue, a significant premium to EMC's 3.6-times-sales valuation.
However, viewed from the perspective of a VMware-less EMC, things might not work out so well. Net out VMware's revenues from EMC's firmwide revenues, and subtract the putative value of its post-IPO stake in VMware from EMC's market cap, and look at what's left.
Once VMware departs the mothership, the rest of EMC -- much slower-growing than VMware, by the way -- will still fetch 3.2 times sales. That's a significant premium to the valuation its rivals command: More than twice the P/S ratio accorded Hewlett-Packard
What did we expect out of EMC last quarter, and what did it produce? Find out in:
Intel is a Motley Fool Inside Value pick, while JPMorgan Chase got the nod from Motley Fool Income Investor. Try any of our market-beating Foolish newsletters free for 30 days.
Fool contributor Rich Smith does not own shares of any company named above.
