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EMC May Report In Line Q1 Earnings On Balanced Demand Across US And Europe

 April 18, 2012 02:22 PM
 


(R. Chandrasekaran) Data storage devices company EMC Corp. (NYSE: EMC) will report its first quarter earnings results before the market opens on April 19. The expectation is that the company may report in line results with a slight bias towards topping the consensus. In such a case, there could be every possibility of the company lifting its outlook for 2012. This is on the strength of balanced demand across the U.S. and Europe.

The company is likely to report 16 percent earnings upside to be driven by 11.1 percent revenue growth. EMC's new products such as VNXe, VMAXe and Isilon continue to witness momentum. In the lower end storage market, the company's VNXe will open growth prospects, while VMAXe could be a bridge between VMAX and VNX. In the large data market space, Isilon continues to gain steam.

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Wall Street analysts currently expect the company to report earnings of 36 cents a share and revenues of $5.12 billion for the first quarter. Last year, EMC earned 31 cents a share and revenues of $4.61 billion.

In the last four quarters, the company's earnings have either come in line with consensus or topped. Importantly, analysts raised their EPS estimate by a cent from 35 cents a share three months ago.

Sequentially, the company may report a fall in earnings as well as revenues. Interestingly, 27 percent of the checks conducted by Oppenheimer pointed towards a sequential increase in sales, whereas the equal number of checks sees a sequential fall in sales numbers.

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In the fourth quarter, EMC earned net income of $832.05 million, up 32.4 percent from $628.56 million and earnings rose 31 percent to 38 cents a share from 29 cents a share in the year-ago quarter. On an adjusted basis, profit grew to 18.6 percent to $1.07 billion from $0.902 billion and earnings increased 16.5 percent to 48.7 cents a share from 41.8 cents a share in the year earlier quarter. Consolidated revenues were higher by 14 percent to $5.6 billion from $4.89 billion in the previous year quarter. Both adjusted earnings and revenues were more than analysts' predictions of 46 cents a share and revenues of $5.49 billion.

The outlook for the second quarter seems to be pretty with a strong pipeline building on solid upgrade activity, particularly in the U.S. In a research note, Oppenheimer indicated that its checks favor EMC's continued momentum and, therefore, raised its EPS estimation for the second quarter to 40 cents a share from earlier predictions of 39 cents a share. Street analysts have also effected a similar change in EPS expectation.

Similarly, the brokerage lifted third and fourth quarters EPS projection also by a cent to 44 cents a share and 53 cents a share respectively. Revenues estimates have been revised up to $5.69 billion from $5.58 billion and $6.35 billion from $6.22 billion respectively for the same period.

The revisions resulted in full year EPS and revenue projection rising to $1.76 a share from $1.73 a share and $22.59 billion from $22.21 billion respectively.

While releasing its fourth quarter earnings number, EMC guided adjusted earnings of $1.70 a share. Interestingly, Street analysts have already lifted their EPS projection to $1.75 a share from $1.71 a share predicted three months ago. Therefore, investors will look forward to the company to revise its full year 2012 EPS estimate on the strength of demand.

For the 30 brokerages following STX,the highest and lowest price target for EMC is $37.00 and $28.00 respectively. Similarly, their mean and median target is $32.78 and $33.00 respectively. Significantly, no analyst puts the stock on the Sell radar. Thirty-two analysts have a Strong Buy or Buy rating on the stock, while four analysts  have Hold recommendation.

In the 52-week period, shares of EMC hit a high of $30.00 and a low of $19.84. The stock closed Tuesday's regular trading at $29.33, which is 2.23 percent lower than 52-week high, but trades 4.75 percent higher than lowest target. After the fourth quarter results, shares of the company surged 25.1 percent. On the other hand, the S&P 500 advanced only 5.7 percent. Interestingly, Oppenheimer maintains Outperform rating with a price target of $34.00.

If the company lifts its full year 2012 earnings outlook, then there is every chance the stock tests its 52-week high.

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