A Few Solid Reasons Why EMC Should Be In Your Portfolio

| About: Dell Technologies (DVMT)


EMC is seeing growth across all its business lines.

The data boom gives EMC great opportunities to grow in the future.

EMC’s subsidiary VMware has been reporting solid growth.

EMC’s huge install base is another factor that should drive long-term revenue growth.

Cloud solutions provider EMC has started the year on the front foot with shares already up close to 10%. EMC's shares have spiked in the last couple of months after the company posted robust fourth-quarter results and reported growth across all its segments. Also, EMC's growth was helped by VMware (NYSE:VMW), as the two companies are in a technology alliance with VMware being a subsidiary of EMC. Looking ahead, EMC has a lot of runway to continue its growth and its performance is being propelled by a number of positive factors.

EMC's growth is being driven by smaller, but much faster growing emerging storage offerings and complemented by accelerated growth and continued steady share gains by VMAX, VNX, and backup solutions. EMC saw growth across all its segments in the previous quarter, as Pivotal grew 15%, VMware grew 15% and EMC Information Infrastructure grew 5%.

Also, EMC reported non-GAAP EPS of $1.80, up 6% from last year and produced slightly more than $5.5 billion in free cash flow. The strong acceleration of EMC's topline growth to 7% is broad based and can be attributed to its strategy, products, and business model that is resonating well with its customers and their confidence in EMC is resulting in strong market share gains.

Growth across the board

EMC's growth will be propelled by the successful launches of EMC XtremIO and adoption of its EMC Isilon, EMC Atmos, and EMC VPLEX products. The company's Unified and Backup Recovery business benefited from the recent product launches of the next-generation EMC VNX and EMC Data Domain product lines.

Revenue from EMC's high-end storage business returned to growth in the fourth quarter as customers continued to turn to the company's popular VMAX family. Revenue growth from EMC's RSA Information Security business and Information Intelligence business accelerated to 17% and 3% year-over-year, respectively.

VCE had an excellent Q4, as demand for Vblock systems showed strong yearly growth. EMC's VSPEX reference architecture portfolio continued to extend its market leadership with rapid adoption and increasing popularity among customers and partners. Additionally, EMC's Cloud Service Provider Partner program was the company's fastest-growing vertical market segment.

VMware also continued to excel as it is uniquely positioned to help customers move from the client-server era to the mobile-cloud era of computing. With VMware helping customers bridge this new world and laying the foundation for the build out of the software-defined data center, it is enabling them to achieve new levels of efficiency, control, and agility.

With the acquisition of AirWatch, the leader in enterprise mobile management and mobile security, VMware is adding a fundamental element towards end-user computing portfolio, enabling it to deliver a complete and proven enterprise class solution for empowering the mobile workforce.

In cloud computing, VMware is leading the charge by driving the software defined data center into private and public clouds, and leveraging the position of over 40 million virtual machines in more than 500,000 enterprises with their industry-leading vSphere Hypervisor, the innovative NSX software defined networking.

Pivotal continued to make progress during the quarter. In the nine months since its formation, Pivotal has met the objectives it set out to accomplish in 2013, i.e. meeting its financial goals, establishing a strong executive leadership team, and launching Pivotal One, a comprehensive, multi-cloud Enterprise PaaS comprised of a set of application and data services that run on top of Pivotal CF, the leading enterprise distribution of the Cloud Foundry platform.

Opportunities ahead

EMC has been seeking new ways to profit from the storage market as companies' slow purchases, especially of more expensive products. Demand for EMC's software and cloud-computing services, which store information and programs on remote servers for access via the Internet, is helping to make up for weaker server sales. It is investing heavily in higher growth markets.

The IT market is going through the biggest and most opportunistic transition, being driven by several key macro trends. First, mobile, smartphones, tablets, and new PC form factors have built-in sensors and telemetry that will collectively generate a massive amount of data to be stored and processed in a new hyperscale data center platform, encompassing both private and public clouds.

Second, cloud computing, consisting of both public and private clouds, will be powered by a new software defined data center model, inculcating new levels of virtualization, automation, efficiency, and agility.

Third, big data has the ability to reach the multi-petabyte, exabyte range. This data is stored in new clouds quickly and affordably, allowing businesses or any enterprise to make more and better customer-focused decisions faster. EMC's ability to analyze vast amounts of information and act in real-time will change every business model and process in virtually every enterprise in almost every industry.

EMC is working with a very large installed base of loyal customers with leading-edge technology for every layer of the IT stack, products, and services for the infrastructure layer that include best-of-breed storage arrays, software defined storage, converged infrastructure, and information security.

Solutions for the virtualization layer, that enable the software defined data center, hybrid cloud, and end-user computing, with over 40 million virtual machines, powering the world's large organizations, and a cloud agnostic platform as a service offering in less than a year has become the PaaS offering of choice for enterprises looking to build out next-gen apps to harness the power of Big Data.

Valuation and conclusion

At a trailing P/E of 20, EMC looks like a growth at a reasonable price opportunity. Moreover, its forward P/E comes down to an impressive 12.7, which means that analysts are expecting solid earnings growth in the future. In addition, analysts expect the company's earnings to grow in the double digits in the future, while a dividend yield of 1.50% makes an investment in EMC even sweeter. So, investors looking to profit from the data boom should definitely take a look at this stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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