Data storage specialist and former high-tech darling EMC (NYSE:EMC) reports earnings for Q4 and FY 2005 Tuesday morning. Analysts are feeling optimistic -- should you?
Wall Street Wisdom:
- General consensus. 28 analysts follow EMC, and nearly every one of them rates the company a "buy" -- in fact, just three of the bunch voice "hold" sentiments.
- Revenues. Despite the recent weakness among tech powerhouses such as Intel (NASDAQ:INTC) and GE (NYSE:GE), analysts continue to expect EMC to produce 14% sales growth and report $2.7 billion in revenues tomorrow.
- Earnings. What's more, they're looking for even better earnings growth -- 31%, to $0.17 per share. Beware these lofty expectations.
Margin watch:
What's that, you say? EMC's margins are out of this world, and growing? True enough. Over the past 18 months, this is what we've seen:
|
Marg. |
6/04 |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
|---|---|---|---|---|---|---|
|
Gross |
49% |
50.5% |
51.2% |
51.8% |
52.5% |
53.1% |
|
Op. |
11.1% |
12.4% |
13.4% |
14.3% |
15% |
15.6% |
|
Net |
9.9% |
10% |
10.6% |
11.6% |
12.3% |
14% |
Inventory check:
I won't argue that the above numbers aren't impressive. But before you get too excited, examine what's been going on with the company's inventories and accounts receivable, relative to sales growth.
|
Quarterly Change* |
6/05 |
9/05 |
|---|---|---|
|
Sales |
+19% |
+17% |
|
A/R |
+21% |
+23% |
|
Inventories |
+28% |
+38% |
When either A/R or inventory growth begins to outpace sales growth, be wary. When both A/R and inventories start to run away from the sales numbers, be worried.
Competitors:
EMC has plenty of competition in this space, which it once owned. Watch out for up-and-comer Hitachi (NYSE:HIT) and reviving powers Hewlett-Packard (NYSE:HPQ) and IBM (NYSE:IBM).
Fool contributor Rich Smith does not own shares of any company named above.
