FBR Capital Downgrades VMware (VMW) to Market Perform

FBR Capital downgraded VMware (NYSE: VMW) from Outperform to Market Perform with a price target of $90.00 (from $96.00), citing growth challenges ahead.

Analyst Daniel Ives commented, "We are downgrading shares of VMware (VMW) from Outperform to Market Perform and lowering our price target from $96 to $90 (~20x our FY16 FCF per share estimate). While we expect VMware to post an in-line-ish 2Q15 (June), we have growth concerns for 2H15 and especially for FY16, given mixed checks around its all-important ELAs due to what we believe is limited upside to further server virtualization penetration, and as it remains early days for growth contributions from its non-vSphere business to fully offset slowing growth at the core. Given our expectations for slowly fading tailwinds from the ELA renewal cycle as this area for VMware matures and competition heats up, we believe ramping the company's emerging technologies (e.g., NSX, VSAN, etc.) remains critical in reigniting license revenue/license billings growth. Overall, we believe VMware is in its "eighth inning" in terms of vSphere penetration at the enterprise, which could limit top-line growth reacceleration, and while some investors are still holding out hope for a positive strategic move by EMC (e.g., spin-off of VMW), it appears to be a fleeting possibility as evidenced by EMC's dogmatic view around VMware within the EMC federation."

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

Shares of VMware closed at $85.20 yesterday.

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