Why EMC (EMC) Was Downgraded by Mizuho

NEW YORK (TheStreet) -- Mizuho downgraded EMC (EMC) to "neutral" from "buy" Thursday.

EMC fell 0.2% to $24.59.

The analyst firm set a price target of $27 for the cloud computing company, down from $30. Mizuho says the downgrade is due to valuation given the company's weak storage growth fundamentals.

EMC recently reported its fourth-quarter earnings, posting earnings of 60 cents a share, up 11% from the previous year's quarter, and revenue of $6.7 billion, also 11% higher than last year in the same period.

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Separately, TheStreet Ratings team rates EMC CORP/MA as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate EMC CORP/MA (EMC) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • EMC's revenue growth has slightly outpaced the industry average of 2.6%. Since the same quarter one year prior, revenues slightly increased by 4.9%. 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.
  • Net operating cash flow has increased to $1,792.00 million or 24.62% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 6.57%.
  • EMC CORP/MA' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, EMC CORP/MA increased its bottom line by earning $1.23 versus $1.10 in the prior year. This year, the market expects an improvement in earnings ($1.80 versus $1.23).
  • The gross profit margin for EMC CORP/MA is rather high; currently it is at 69.58%. EMC has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, the net profit margin of 10.57% trails the industry average.
  • Despite currently having a low debt-to-equity ratio of 0.32, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.26 is sturdy.

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