EMC (EMC) Won't Spin VMware (VMW); SOTP Shows Strong Upside, Summit Research Says

EMC (NYSE: EMC) is modestly lower Monday following reports late Friday from Reuters that the company has decided not to spin off VMware (NYSE: VMW).

In the view of Summit Research analyst Srini Nandury this is not surprising.

"We always believed spinning off VMware would be detrimental to the long-term viability of EMC," he said.

Amid the news, the firm pererformed a sum of the parts analysis (SOTP) of the company to see if there is any other way to unlock inherent value in the EMC federation.

"We analyzed the VMware, Core Storage, Emerging Storage, RSA and Pivotal segments. Our EMC SOTP analysis suggests that EMC is grossly undervalued at current levels, and we believe instead of spinning off VMware to unlock value, the better alternative is to spin off a small portion of the Emerging Storage Business (ESB) as an independent company (as it did with VMware in 2007). The ESB as it stands could be valued as much as the core EMC business, or anywhere between $7-8 per share. In addition, RSA could be spun off as a separate entity, and in our view is worth about $3 to EMC. Since the core EMC storage is worth about $8, RSA worth about $3.00, VMware about $14 and Pivotal about $1, this implies that investors are getting ESB for free."

In total the SOTP analysis implies EMC could be worth at least $34-35.

As a result the firm is reiterating a Buy rating on EMC and raise their price to $34 from $31.

For an analyst ratings summary and ratings history on EMC click here. For more ratings news on EMC click here.

Shares of EMC closed at $28.94 yesterday.

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