J.P. Morgan‘s Mark Moskowitz this morning reiterated a Neutral rating on shares of EMC (EMC) in advance of the company’s “Strategy Day” analyst meeting in New York tomorrow, when it will discuss plans for both the company and for VMware (VMW), in which EMC holds an 80% stake.
Moskowitz thinks investors are principally concerned with the growth outlook, and he warns there will probably little to calm investors, which may end a recent rally in the shares:
In our view, a key topic at the strategic forum stands to be EMC�s view on revenue growth. At its last analyst meeting in February 2011, EMC targeted 10% long-term revenue growth, reaching $28 billion in consolidated revenue by 2014. Currently, the Street consensus is at $25.5 billion for 2014 and JPMe is at $24.7 billion. In our view, EMC could reference increasing acquisitions as the driver for closing the gap in revenue growth expectations. Reason being, with a stronger NetApp (NTAP) and growing chorus of cloud service providers pushing storage solutions, we think EMC may have to rely more and more on acquisitions instead of market growth, which could introduce execution and capital risks [�] We do not expect shares of Neutral-rated EMC to extend the recent rally in the stock, as EMC is not likely to provide much incremental commentary to overcome investor concerns related to revenue growth potentially reaccelerating at both EMC and VMware.
On the topic of acquisitions, EMC may talk about prospects in security, networking and data analytics, given “While EMC or VMware possess capabilities in each of these segments, the portfolios are not complete.”
However, “The risk is that potential target assets could command high valuation prices, which could frustrate investors.”
Moskowitz’s estimate for this year is $23.2 billion in revenue and $1.53 per share in profit, below Street consensus for $23.5 billion and $1.86.
EMC shares today are down 28 cents, or 1%, at $24.28. VMW stock is off 33 cents, or 0.4%, at $75.07.
Previously: EMC, VMW Analyst Day: Street Awaits �Pivotal,� Financial Update, March 11th, 2013.
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