Seeking Alpha
Growth at reasonable price, value, contrarian, dividend investing
Profile| Send Message|
( followers)  

EMC Corporation is a technology company that integrates the system delivery of information infrastructure for worldwide use. Its four main areas are: RA Information Security, Information Storage, Content Management, and VMware virtual infrastructure. EMC is a market leader in storage technology operating and selling its products in North and South America, Europe, and Asia.

On July 19, the company reported earnings for the second quarter that slightly exceeded analyst estimates. Reported earnings for the quarter were $0.36 versus street estimates of $0.35. Revenue was $4.85 billion versus street estimates of $4.83 billion. EMC guided street estimates higher for the year from $1.46 up to $1.48. The company also expects to repurchase $1.5 billion in common stock for 2011.

Valuation: Consensus estimates for 2011, as previously mentioned, were $1.46 but are now being ramped up by analyst to the $1.48 to $1.49 range. Consensus estimates for 2012 center around $1.74. The shares trade at only 15.5 times 2012 projected earnings. The monthly PE low for the shares over the last 20 years is 12, with a median PE of 27.5. Based on these historical ranges the shares appear to be greatly under valued. The table below illustrates several valuation criteria.

Valuation Criteria
2009 2010 2011E 2012E 2013E
P/E 30.2 21.6 17.4 15.5 13.3
Return on Equity 12.9% 16.2% 18.5% 19% 19.3%
Free Cash Flow Yield 4.2 6.2% 6.2% 9.7% 12.4%


Technical Analysis: After a strong advance from a $18 breakout in March of 2010 to the $27 level, the shares have undergone a 6-month consolation between $25 and $28.5 Money flow and volume support a positive move to the upside. I would begin accumulating the shares, becoming aggressive on pullbacks to $26, in anticipation of the uptrend continuing.

(Click chart to expand)


Earnings are higher than street estimates. EMC guided higher for the remainder of the year. Street estimates are being raised. Valuation levels are in the lower ranges of historical levels. The chart signals further moves ahead. Buy.

Source: EMC: All Signs Continue to Trend Up