NEW YORK (TheStreet) --Shares of EMC Corp. (EMC) are declining by 1.05% to $25.56 in midday trading on Tuesday, following reports that the information technology service provider's deal with Dell could be threatened by a $9 billion tax bill.
Dell's $67 billion bid to acquire EMC could be stopped by the massive tax bill, sources told the technology news website Re/Code.
Some aspects of the deal, in particular a tracking stock, may not qualify for the tax treatment the companies are considering essential for the deal to go through.
Tracking stocks give stockholder the chance to benefit from the performance of a certain unit of a publically traded company, Reuters reports.
"This is a valid worry, but not a deal breaker," FBR Capital Markets analyst Daniel Ives told Reuters. "We see Michael Dell as making sure this deal goes through, even if it takes some deal tweaks along the way."
The record setting deal for the tech industry was announced in October and valued EMC at $33.15 per share.
Separately, TheStreet Ratings team rates EMC CORP/MA as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
We rate EMC CORP/MA (EMC) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and weak operating cash flow.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- EMC's revenue growth trails the industry average of 25.6%. Since the same quarter one year prior, revenues slightly increased by 0.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The current debt-to-equity ratio, 0.36, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.88 is somewhat weak and could be cause for future problems.
- The gross profit margin for EMC CORP/MA is rather high; currently it is at 68.23%. Regardless of EMC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, EMC's net profit margin of 7.89% is significantly lower than the industry average.
- Net operating cash flow has decreased to $1,403.00 million or 17.47% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, EMC has underperformed the S&P 500 Index, declining 10.34% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- You can view the full analysis from the report here: EMC
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.