EMC Corporation Should Expect Stagnant Earnings
Estimize | Apr 23, 2014 01:18AM ET
EMC Corporation (NYSE:EMC) is set to report FQ1 2014 earnings before the market opens on Wednesday, April 23rd. EMC is an American multinational corporation that specializes in cloud computing, virtualization, IT services, data storage, analytics, and information security. EMC is the majority owner in VMware and has recently made a big push to expand its cloud services. EMC is also a majority owner in Pivotal, a cloud services company spun off from EMC and VMware which EMC CEO Joe Tucci has said he wants to take public. This quarter Wall Street is expecting an EPS drop of 4c per share compared to FQ1 last year and marginal year over year growth of less than 1%. Here’s what investors expect on Wednesday.
The current Wall Street consensus expectation is for EMC to report 35c EPS and $5.408B revenue while the current Estimize.com consensus from 11 Buy Side and Independent contributing analysts is 36c EPS and $5.484B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting EMC to beat the Wall Street consensus on EPS by a small margin and the Street’s revenue estimates by a moderate delta.
By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market’s actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.
The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing an average differential between the two groups’ EPS expectations and a larger than usual difference in revenue forecasts.
The distribution of estimates published by analysts on the Estimize.com platform range from 36c to 37c EPS and from $5.428B to $5.859B in revenues. This quarter we’re seeing a very narrow distribution of EPS estimates and a wider range of estimates on revenue.
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The size of the distribution of EPS estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A narrower distribution of estimates signaling more agreement in the market, which could mean less volatility post earnings.
Over the past 4 months the Wall Street EPS forecast dropped from 43c to 35c while the Estimize consensus oscillated between 37c and 36c. Meanwhile the Wall Street revenue consensus plummeted from $5.841B to $5.408B while the Estimize consensus slid at the end of the period from a high of $5.558B to $5.484B. Timeliness is correlated with accuracy and downward analyst revisions at the end of the quarter can be a bearish indicator, in this case however expectations were mostly flat going into the report.
The analyst with the highest estimate confidence rating this quarter is WallStreetBean who projects 37c EPS and $5.464B in revenue. This season WallStreetBean is ranked 13th and is ranked 10th overall among over 4,150 contributing analysts. In the Spring 2014 earnings season WallStreetBean has been more accurate than Wall Street in forecasting EPS and revenue 62% of the time throughout 13 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case WallStreetBean is expecting EMC to beat the EPS consensus from both Estimize and Wall Street but report between the two groups’ expectations on revenue.
So far this year EMC stock has been volatile but its up 8% year to date. Wall Street is expecting revenue to come in flat compared to last year while the Estimize community is calling for a nearly 2% gain in year over year sales, which is also fairly modest. While earnings may be stagnant, EMC and VMware continue to prep Pivotal for an IPO, potentially as soon as sometime later this year.
Get access to estimates for EMC published by your Buy Side and Independent analyst peers and follow the rest of earnings season by heading over to Estimize.com. Register for free to create your own estimates and see how you stack up to Wall Street.
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