NEW YORK (TheStreet) -- EMC Corp. (EMC) stock was downgraded at Wells Fargo Securities to "market perform" from "outperform" and valuation range lowered to $25 to $28 from its previous range of $29 to $30.
Analysts are expressing their concerns due to uncertainties as to whether the deal with Dell could be complicated or derailed by potential tax issues, according to the firm's note.
This action comes after yesterday, Re/code reported that Dell's $67 billion bid to acquire EMC could be threatened by a massive $9 billion tax bill.
Furthermore, "The complexity of this deal and the measurement of the outcomes makes this event challenging and we fear disruption, in the interim, could have an adverse impact on business," analysts said.
However, analysts see potential in EMC as improvements in fundamentals could boost shareholder value.
EMC shares closed Tuesday's trading session down 2.25% to $25.25.
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