EMC (EMC) Increased Buyback, Dividend Somewhat Expected; Should Grow Moving Forward

May 30, 2013 11:54 AM EDT
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Lazard Capital maintains a Buy rating and $28price target on EMC Corp. (NYSE: EMC) following announcement of new capital deployment earlier.

EMC boosted its buyback plan by $1 billion to a total of $6 billion authorized through 2015. In addition, the company initiated a quarterly dividend at 10 cents per share, yielding 1.7 percent annually at today's trading range.

Analyst Edward Parker commented, "Given trends in the space and commentary from mgmt over the past several quarters, this announcement was widely expected, although the size of the return is perhaps larger than anticipated. EMC has plenty of cash but as a result of geographic constraints on cash and ongoing requirements to fuel selective M&A, it will lever up to finance the program."

Parker also noted that the buyback, less about $500 million in repurchases made in 2013, equates to about 10 percent of the company's market cap. Dividends will be about $900 million per year, but will grow over time given EMC's allocation plan of 20 percent to 25 percent of cash per year less free cash flow from VMware (NYSE: VMW).

Finally, the analyst commented, "$3B in repurchases over the next 12 months net of stock comp dilution would reduce share count by ~5%. Assuming that EMC can borrow at investment grade rates, additional
interest expense would be in the neighborhood of ~$200M annually, roughly netting out EPS accretion from repurchases."

EMC is up 5.2 percent on Thursday's session.

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 $23.66 yesterday.

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