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UPDATE: VMware's (VMW) Valuation Seen as 'Extremely Compelling'; Drexel Hamilton Upgrades to Buy

October 27, 2015 8:06 AM EDT
Get Alerts VMW Hot Sheet
Price: $142.48 --0%

Rating Summary:
    17 Buy, 36 Hold, 2 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 13 | Down: 11 | New: 11
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(Updated - October 27, 2015 9:35 AM EDT)

Drexel Hamilton upgraded VMware (NYSE: VMW) from Hold to Buy with a price target of $73. The upgrade follows a 23% decline in the stock since October 9, and analyst Brian J. White sees valuation as "extremely compelling." He also thinks Dell may need to adjust the terms of its EMC Corp. (NYSE: EMC) transaction.

"In our view, VMware’s stock has been hit with the perfect storm that includes Dell’s planned acquisition of EMC and the issuance of VMware tracking stock (with no voting rights), combined with VMware’s announcement of a dilutive Cloud Services joint venture with EMC (that includes Virtustream) last week and a mixed 3Q:15 earnings report," said White.

The analyst continued, "Since we believe the sharp decline in VMware’s stock may threaten Dell’s planned acquisition of EMC, Dell may need to adjust the terms of the transaction. Moreover, the Dell deal is expected to generate over a $1 billion in incremental revenue opportunities for VMware over the next few years and thus could end up being a fundamentally positive transaction for the company. At the same time, we would not rule out the potential for another bidder to emerge for EMC with more favorable terms."

White added, "As software becomes more ubiquitous in the data center, VMware has been actively expanding outside its traditional server virtualization software business into new areas of growth that we believe could prove interesting in the future ... , during our discussions at Oracle Open World this week, we walked away more comfortable that the recent reaction in VMware’s stock is based more on emotion (and confusion) and less on the realities of the company’s future in next-generation data centers."

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 $59.74 yesterday.



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