EMC: Undervalued And Finally Moving Higher

Mar.17.14 | About: Dell Technologies (DVMT)


After treading water in 2013, the stock of EMC Corp. is on the move in 2014.

The stock is offering better valuation levels than the overall market, and is taking market share in its core business lines.

EMC has some hidden assets, and it should do well in the more volatile market environment of the new year.

EMC Corp. (EMC), a storage solutions provider, spent most of 2013 treading water while equities returned over 30% during the year. 2014 has been a different story so far, as the stock has finally turned up as investors shift from high-flying growth and momentum stocks to more reasonably priced equities with solid but not spectacular growth prospects.

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I believe this rise will continue for EMC for a variety of reasons.

Underappreciated Assets:

EMC owns 80% of virtual server software provider, VMware (NYSE:VMW). VMware is by far the market leader in this fast-growing niche. It is growing revenues consistently in the 15% rate, and recently was initiated as a "Buy" at Wunderlich, and FBR Capital upped its price target to $120 a share last week as well.

EMC has over $3B in net cash on its balance sheet. This in addition to the over $5B in net cash on VMware's balance sheet. Net cash and EMC's stake in VMware makes up over 60% of EMC's market capitalization at current prices.

Market Share:

EMC is gaining market share. In the recently completed quarter, the company saw its external disk share rise 220 bps Y/Y to 32.9%, and its total disk share rise 200 bps to 25.8%. EMC is the market share leader in both categories, and continues to take market share from its main competitor, IBM Corp. (NYSE:IBM), as that tech company restructures that part of its business.


EMC is offering cheaper valuations than the overall market right now. The overall market goes for ~16x forward earnings, and revenues are expected to grow 4% overall for the S&P 500 this year. EMC sells for less than 14x this year's expected earnings, and should grow sales in the 5% to 8% annual range over the next two years.

Earnings should also grow ~10% annually over the next 24 months. EMC pays a small dividend of 1.5%, but given its cash hoard; activists could ratchet up the pressure to return some more cash to shareholders via dividends and/or stock repurchases at some point in the foreseeable future.

In conclusion, EMC offers good value at current levels. It is a good play for what I think will be a more volatile market in 2014. ACCUMULATE.

Disclosure: I am long EMC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.