IT Hardware Stocks

EMC Corporation Analysis – September 2015 Update $EMC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how EMC Corporation (EMC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): EMC Corporation (EMC) is a service provider to information technology (IT) operations to an as a service model (ITaaS). It develops, delivers and supports the IT industry’s range of information infrastructure and virtual infrastructure technologies, solutions and services. EMC manages the Company as part of a federation of businesses: EMC Information Infrastructure, VMware Virtual Infrastructure and Pivotal. EMC Information Infrastructure business consists of three divisons: Information Storage, Enterprise Content Division and RSA Information Security. EMC Information Infrastructure provides a foundation for organizations to store, manage, protect, analyze and secure quantities of information. VMware develops and markets its product and service offerings within three main product groups: Software-Defined Data Center, Cloud Services and End-User Computing. Pivotal’s three offerings include the Pivotal Big Data Suite, Pivotal Labs and Pivotal Cloud Foundry.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of EMC – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $45,538,705,714 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.13 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 109.23% Pass
6. Moderate PEmg Ratio PEmg < 20 17.73 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.29 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.13 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.46 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EMC value Chart September 2015

EPSmg $1.33
MG Growth Estimate 8.67%
MG Value $34.43
Opinion Undervalued
MG Value based on 3% Growth $19.31
MG Value based on 0% Growth $11.32
Market Implied Growth Rate 4.62%
Current Price $23.62
% of Intrinsic Value 68.61%

EMC Corporation is not suitable for the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned by the low current ratio and short dividend history, while the Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.84 in 2011 to an estimated $1.33 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.62% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on EMC Corporation (EMC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

EMC Charts September 2015

Net Current Asset Value (NCAV) -$5.50
Graham Number $18.24
PEmg 17.73
Current Ratio 1.13
PB Ratio 2.29
Dividend Yield 1.95%
Number of Consecutive Years of Dividend Growth 3

 

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Most Recent Balance Sheet Figures

Total Current Assets $14,087,000,000
Total Current Liabilities $12,507,000,000
Long-Term Debt $5,472,000,000
Total Assets $44,867,000,000
Intangible Assets $18,138,000,000
Total Liabilities $24,790,000,000
Shares Outstanding (Diluted Average) 1,947,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.43
Dec14 $1.32
Dec13 $1.33
Dec12 $1.23
Dec11 $1.10
Dec10 $0.88
Dec09 $0.53
Dec08 $0.64
Dec07 $0.77
Dec06 $0.54
Dec05 $0.47
Dec04 $0.36
Dec03 $0.22
Dec02 -$0.05
Dec01 -$0.23
Dec00 $0.79
Dec99 $0.46
Dec98 $0.37
Dec97 $0.26
Dec96 $0.20
Dec95 $0.16

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.33
Dec14 $1.25
Dec13 $1.14
Dec12 $0.99
Dec11 $0.84
Dec10 $0.70
Dec09 $0.60
Dec08 $0.61
Dec07 $0.56
Dec06 $0.40
Dec05 $0.27
Dec04 $0.19
Dec03 $0.15
Dec02 $0.17
Dec01 $0.29
Dec00 $0.51
Dec99 $0.34

Recommended Reading:

Other ModernGraham posts about the company

17 Companies in the Spotlight This Week – 9/27/2014
EMC Corporation Annual Stock Valuation – 2014 $EMC
17 Companies in the Spotlight This Week – June 21, 2014
EMC Corp Quarterly Valuation – June 2014 $EMC
17 Companies in the Spotlight This Week – 3/22/14

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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