EMC (EMC) Risk-Reward Favorable, Bernstein Upgrades to Outperform

(Updated - April 17, 2015 1:04 PM EDT)

Bernstein upgraded EMC (NYSE: EMC) from Market Perform to Outperform with a price target of $32. Analyst Toni Sacconaghi thinks risk-reward is favorable given poor investor sentiment. He also thinks investors owning shares are getting a call option on improving IT spend and fundamentals.

Sacconaghi explained, "EMC's stock has underperformed by 6000+ bps over the last three years, and investor sentiment is very weak. Moreover, EMC is generally expected to miss Q1 estimates when it reports next week, due to sluggish storage spending."

"With three activists now owning shares in EMC, and CEO Joe Tucci set to retire (as CEO) and become Chairman by year end, we see heightened pressure and likelihood of change," continued the analyst. "Importantly, we believe several potential value creation levers exist for EMC, particularly given the company's healthy balance sheet and cash flow, which could increase EPS by 10% or more."

Sacconaghi said EMC's levers include:

• A significant stock buyback
• A highly accretive cash acquisition.
• Opportunity for portfolio plays –VMWare.
• Potential for cost reduction/workforce actions.
• Other portfolio options.

"While our upgrade is principally focused on the opportunity for change in the near to medium term, we believe that owning EMC's stock now also provides a call option on improving IT spend and on EMC's delivering on its new growth initiative," added Sacconaghi.

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 $26.05 yesterday.

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