I always have viewed EMC (EMC) as a core holding. I am not expecting Apple or Google or Facebook or Qualcomm. Just nice steady growth with very high visibility and consistency. EMC's storage products and solutions are absolutely critical to the world of Internet based computing, communication and entertainment. Storage is a high priority, mission critical purchase for EMC's customers, gaining share of IT budgets and outgrowing spending on most core technology products and services.
EMC's latest quarter supported this view. EPS of 37 cents was a penny better than expected while revenues of $4.04 billion fell about $50 million short of consensus. Margins were better than expected. Management stated it would "meet or exceed" prior EPS guidance for 2012. Wall Street greeted these results with a sell-off. The stock is down about 4%. The stock has done very well this year after a weak finish in 2011. Recent Street research was expecting a stronger report based on channel checks and apparent business momentum.
Despite the Street's disappointment, nothing in the report, guidance or management commentary suggests any meaningful change in the outlook. Revenues grew 11% and EPS were up 19%. The balance remains extremely strong and free cash flow in 2012 should approach $5 billion. Backing out the public stock market value of EMC's majority interest in high flying VMware (VMW) (revenue up 25% last quarter) and the company's $6 billion of cash and the stock trades about 10 times earnings. I think that is way too cheap for a company targeting at least 13% annual growth in revenue and EPS from 2010 through 2014. Furthermore, as previously noted, EMC's outlook seems quite secure giving the importance of storage to current information and communications technology trends.
Disclosure: EMC is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts. Steve is sole proprietor of Northlake, a registered investment advisor.