is having a banner week, first announcing its $1.7 billion acquisition of
and Thursday posting solid third-quarter revenue and earnings growth.
The strong third quarter was preannounced earlier in the week, but the final report included the small upside surprise¿that pro forma earnings in the fourth quarter will be 7 cents a share, a penny better than analysts had expected. In recent trading, the stock was up 63 cents, or 5%, to $13.47 a share.
For the third quarter, the company earned $159 million, or 5 cents a share, on revenue of $1.51 billion, excluding a 2-cent benefit from the settlement of tax audits. Revenue was up 20% vs. the year-ago period while earnings rebounded from $21 million, or 1 cent a share, in the third quarter of 2002, according to generally accepted accounting principles.¿
Saying it is "on track to achieve double-digit growth for the year," the company announced that for the fourth quarter it expects to earn 5 cents a share on revenue of about $1.75 billion, including a 2-cent charge for completing the acquisition of storage-software maker Legato Systems, which the company purchased in July for $1.2 billion. Management emphasized that its estimates assume the successful closing of the Legato deal on Oct. 20.
With its stock up about 100% for the year even after the acquisitions, it is clear that investors support the company's move into software. At Wednesday's closing price of $12.84, the stock still trades at a price-to-earnings ratio of 31, compared to 19 for
, 15 for
and 31 for
. So it isn't shocking that the company used its richly valued stock to go shopping for assets that could help it defend itself as hardware becomes increasingly commoditized.
EMC, primarily known for its storage hardware, says it expects to generate more than 25% of its total 2004 revenue from software. Documentum should generate close to $300 million in new revenue for EMC next year and, according to the company, will have no material downside effect on 2004 earnings before becoming accretive in 2005.