EMC Beats Q3 Estimates, But Growth Concerns Pressure Shares

| About: Dell Technologies (DVMT)

EMC (EMC) this morning reported third quarter results which edged Street expectations, and provided fourth quarter guidance consistent with current analyst projections. But concerns over margins and the company’s growth rate are pressuring the shares today.

EMC reported third quarter revenue of $2.82 billion, above the consensus $2.67 billion estimate; profits of 13 cents a share came in a penny ahead of expectations. The company also forecast fourth quarter revenue of at least $3.16 billion - a bit ahead of the Street view of $3.05 billion - with profits now expected to be 16 cents a share excluding special items, right in-line with current analyst views. The company also said it will reduce its staff by about 1,250 people, resulting in a charge to fourth quarter earnings of $150 million to $175 million.

Shebly Seyrafi, an analyst with Caris & Co.
, said in a research note today that “investors may be concerned about the decline in gross margin, guidance which may not impress (although it was OK) and the large increase in inventory (+17% sequentially.)” He notes that the company’s fourth-quarter forecast implies 10% sequential growth in storage, “a bit lighter than the typical seasonality.”

Seyrafi also noted that the company offered “tepid organic growth guidance,” which he asserts is an incrementally negative factor for companies which sell to EMC, including Emulex (NYSE:ELX), Brocade (NASDAQ:BRCD) and Seagate (NASDAQ:STX).

That said, Seyrafi recommends buying the stock on weakness; he actually increased his fiscal 2007 non-GAAP per-share earnings estimate to 81 cents a share from 71 cents, and he boosted his price target to $15 from $13.

Laura Conigliaro, an analyst with Goldman Sachs, wrote in a note today that the better-than-normal September quarter results “were mostly a result of spillover from a weak June quarter.” But she says the just-announced layoffs should make up from expected dilution associated with the company’s pending acquisition of RSA. She also notes that “extremely aggressive share buybacks in 2006″ should also help per-share profits, and says she expects another round of share repurchases to be announced soon.

Conigliaro raised her price target on the stock today to $14 form $12.50, but maintained her Neutral rating on the stock. She continues to see 2007 profits of 66 cents a share; for the fourth quarter, she expects 17 cents a share. for 2008 she moves up her number to 85 cents a share from 82 cents.

EMC shares today have slumped 54 cents to $12.31.

Emulex is off 27 cents at $19.08, Brocade is down a penny at $8.68 and Seagate is off 11 cents at $21.89.

EMC 1-yr chart:

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