EMC Corp. Hits New 52-Week High on Expected Spinoff

Zacks

Shares of network storage giant, EMC Corp. (EMC) hit a new 52-week high of $30.92 to close at $30.89 on Dec 26, 2014.

This rise in share price marked a decent one-year return of about 23.6% and robust year-to-date return of about 22.0%. Average volume of shares traded over the last 30 days was 5.92 billion. This Zacks Rank #2 (Buy) company has a market cap of $62.86 billion and long-term expected earnings growth rate of 10.5%.

Growth Drivers

In the third quarter of fiscal 2014, EMC reported revenues of $6.03 billion, which increased 9% on a year-over-year basis. Free cash flow totaled $1.3 billion while EMC had a cash hoard of $15.4 billion.

Moreover, EMC expects to repurchase shares worth $3 billion in 2014 in a bid to improve its bottom line. Currently, the dividend yield of the company is 1.9%, which is pretty good by normal standard.

Additionally, we believe that the recent acquisitions of Spanning Cloud Apps Inc., Maginatics and Cloudscaling Group Inc. will definitely bolster its cloud-based offerings, going forward.

Further, it has been quite some time now that EMC has been under pressure from activist investor, Elliot Management Corp. to initiate a tax-free spinoff of its 80% stake in VMware (VMW). VMware contributed $23.2 billion of EMC’s revenues in fiscal 2013. Elliot Management has further suggested that the upside to such a spinoff will exceed 40%. We believe that this is doing wonders for the share price of EMC.

Conclusion

We believe that EMC is well positioned to benefit from incremental data center hardware spending in the long run. EMC’s vast product portfolio, which has products suitable for any kind of budget, will boost its market share. Additionally, aggressive share repurchase will drive earnings.

However, a sluggish IT spending outlook for the next couple of years will continue to keep margins under pressure. Moreover, EMC’s high-end storage systems are facing increasing competition from flash-driven storage technology providers like SanDisk (SNDK) and Western Digital (WDC). This will continue to hurt the top line in the near term.

Currently, EMC has a Zacks Rank #2 (Buy).

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