MKM Partners Raises Price Target on VMware (VMW) Following Strong 2Q Results

MKM Partners reiterated a Buy rating on VMware (NYSE: VMW), and raised the price target to $80.00 (from $70.00), following the company's 2Q earnings report. License revenue of $644mn beat the consensus estimate of $638mn. Total revenue also came out ahead at $1,693mn vs. $1,680mn. With higher confidence, VMW raised its guidance for 2016 for total revs, license revs, op margins, EPS, and cash flows.

Analyst Kevin Buttigieg commented, "VMW's 2Q16 results beat expectations across most metrics with a solid outperformance in total bookings. Guidance for 2016 was raised reflecting outperformance in 1H16 and better confidence in the 2H16 outlook. Investors had feared that VMW could see worse than expected declines in its server virtualization (compute) business that might not be offset by growth in new products, but instead new products are ramping faster than expected while VMW is leveraging a large ELA renewal cycle in 2016 to drive a slightly better performance in compute. With increasing momentum in new products (which is also driving better non-ELA growth), investors can begin to see a future for VMW beyond server virtualization, while at the same time, VMW's stock should benefit from the end of the EMC (EMC, $27.54, NR) acquisition overhang and the start of its $1.2bn share buyback. Our $80 price target is calculated as 12x EV/2016E CFO, reflecting a higher forecast and a more normal multiple given end of EMC deal concerns."

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 $62.57 yesterday.

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