Information technology provider, EMC Corporation (NYSE:EMC), was downgraded by analysts at Wells Fargo & Co (NYSE:WFC) just after the met the management of the company. The analysts cited that there are near-term pressures on EMC even though it seems to be on the right path for long-term growth. There is a possibility that EMC could cut its 2015 performance prediction.
The analyst action
EMC Corporation (NYSE:EMC) was downgraded to “Market Perform” from “Outperform”. Its target price was also cut to a range of $26-28 from $31-34. Wells Fargo’s analysts who acted on EMC were led by Maynard Um. Some of the key highlights of the analysts’ move on EMC were that there was limited downside risk on the stock. However, the stock was poised to remain range bound in the short-term, at least until next year.
The analysts further noted that EMC Corporation (NYSE:EMC) may be compelled to narrow its 2015 guidance, especially because of currency translation impact. However, hedging is expected to help the company in 2015. EMC reaffirmed its 2015 EPS and revenue as $1.98 and $26.1 billion, respectively.
For the long-term Um cited that EMC seems to be on the right path, especially on the ability to become a scale competitor. As such, over the long-term Wells Fargo estimated 2016 EPS at $2.18, citing that $0.03 per share in earnings will come from earnings increases in the core business and $0.07 will become from the support of stock buyback.
Some of the key risks likely to put pressure on EMC Corporation (NYSE:EMC) include slowdown in IT spending, overcapacity in the industry and intense competition.
As for the spinoff of the 80% stake in VMware, Inc. (NYSE:VMW) the board of EMC Corporation (NYSE:EMC) didn’t seem to favor such a move. However, investors such as Elliott Management led by Paul Singer have been calling for the sale of the asset to unlock shareholder value.
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