NEW YORK (TheStreet) -- EMC (EMC) shares are up 5.51% to $23.92 in early market trading on Wednesday following reports that the company's board is considering being taken over by VMware (VMW), a software company of which EMC is a majority owner, according to Re/code.
The recent market downturn is responsible for the IT service provider's renewed consideration of the deal, which is known as a downstream merger. EMC's stock has fallen 6.02% over the past two sessions including a double digit drop Monday.
VMware provides virtualization infrastructure solutions.
Re/code previously reported that VMware CEO Patrick Gelsinger floated the idea of the takeover earlier this month. EMC currently owns about 80% of VMware.
EMC board members have also decided that CEO Joe Tucci must step down before the end of the year, according to the tech news service's sources.
Tucci, who is currently working without a contract, has been opposed to the merger and would prefer to buyout the remainder of VMware's shares that EMC does not already own.
Though the purchase price and details of the transaction have not been finalized, VMware will reportedly issue about $50 billion worth of new shares, a portion of which would be exchanged of EMC shares, according to Re/code.
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, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and notable return on equity. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth significantly trails the industry average of 36.8%. Since the same quarter one year prior, revenues slightly increased by 3.3%. 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.
- Despite currently having a low debt-to-equity ratio of 0.37, 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 0.89 is weak.
- EMC CORP/MA's earnings per share declined by 10.7% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, EMC CORP/MA reported lower earnings of $1.31 versus $1.33 in the prior year. This year, the market expects an improvement in earnings ($1.87 versus $1.31).
- The gross profit margin for EMC CORP/MA is rather high; currently it is at 67.46%. 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 8.01% is significantly lower than the industry average.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to the other companies in the Computers & Peripherals industry and the overall market, EMC CORP/MA's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full analysis from the report here: EMC Ratings Report