What The Buy Side Expects From EMC

| About: Dell Technologies (DVMT)

EMC Corp. (EMC) is set to report FQ4 2013 earnings before the market opens on Wednesday, January 29th. EMC is an American multinational corporation that specializes in cloud computing, virtualization, IT services, data storage, analytics, and information security. Last quarter EMC fell behind others in the industry and missed analyst expectations by a wide margin.

This quarter the expectations are sky high, largely thanks to the growth in cloud computing and EMC's partial ownership of VMware (NYSE:VMW) and GoPivotal. In December cloud competitor Oracle (NASDAQ:ORCL) posted much stronger than expected numbers and IBM (NYSE:IBM) has recently committed $1.2 billion toward bolstering its own cloud computing capacities. Cloud computing is an industry that both analysts and corporations are expecting continued growth in over the next decade, here's how the buy side expects EMC to report Wednesday.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.image

The current Wall Street consensus expectation is for EMC to report 59c EPS and $6.626B revenue, while the current Estimize.com consensus from 11 Buy Side and Independent contributing analysts is 59c EPS and $6.630B revenue. Despite a bad miss last quarter, this quarter the buy-side as represented by the Estimize.com community is expecting EMC to report inline with Wall Street expectations on profit and beat by a small margin on revenue.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a very small differential between the 2 groups' forecasts.

By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.


The distribution of estimates published by analysts on the Estimize.com platform range from 57c to 60c EPS and $6.480B to $6.708B in revenues. This quarter we're seeing a smaller distribution of estimates compared to previous quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A smaller distribution of estimates signaling more agreement in the market, which could mean less volatility post earnings.image

The Wall Street and Estimize EPS forecasts have both remained in a tight range all quarter and have fallen from 60c to 59c. Revenue forecasts between the two groups have converged throughout the quarter with the Wall Street consensus dropping from $6.661B to $6.626B while the Estimize.com expectation has increased from $6.610B to $6.630B. Timeliness is correlated with accuracy and at the end of the quarter both groups are showing very similar earnings expectations for EMC.image

The analyst with the highest estimate confidence rating this quarter is Zabajaba who projects 59c EPS and $6.480B in revenue. In the Winter 2014 season, Zabajaba is yet to make an estimate but is ranked 146th overall among over 3,600 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case the analyst with the highest rated estimate is predicting that EMC will report inline with profit expectations but come up way short on revenue.

Disclosure: none