Analyst Thoughts On VMware (VMW) After Strong Q4 Results

January 26, 2010 11:57 AM EST
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Price: $129.26 +3.94%

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    19 Buy, 33 Hold, 2 Sell

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A number of Wall Street analysts are commenting on VMware (NYSE: VMW) today following better than expected fourth quarter results after the close. VMW reported Q4 EPS of $0.31, 5 cents better than the analyst estimate of $0.26. Revenue for the quarter was $608 million, which compares to the estimate of $552.90 million. VMware sees Q1 revs of $580-$600, versus the consensus of $580.3 million, and sees FY10 sales of $2.45-$2.55 billion, versus the consensus of $2.28 billion. Shares of VMW are up 13.7 percent mid-day to $47.75.

It seems despite the stellar results there are still many naysayers.

  • Wedbush: "Reports Q4 revenues and EPS much better than expected. The results and guidance indicates that there are large numbers of servers that are still running in a non-virtualized environment...Although the VMW stock has run up 92% in the last 12 months vs. NASDAQ which is up 49%, we believe that VMW could continue to outperform most other tech stocks and the market in general. We believe that the sentiment on VMW, which was overly negative until now, will improve due to its solid earnings. We are therefore raising our 12-month price target to $60. This represents a cash-adjusted multiple of 8 times our 2011 revenue estimate of $2.78B. We believe VMware deserves a premium multiple as it is growing faster than most of its peers." Maintains Outperform, raises price target from $51 to $60.

  • Benchmark: "We continue to believe the Company's competitive position in the increasingly essential virtualization market is unchallenged and that its product pipeline allows it to increase per-unit revenue and average deal sizes." Reiterate Buy rating and $54 price target.

  • Deutsche Bank: "VMware posted strong 4Q results as pent-up for virtualization led to significant out-performance. An improving macro economy, an enterprise budget flush, strong renewals and a premium SKU mix helped deliver license revenue 13% above our and most investor's expectations. We are raising our estimates, but with the stock up 18% in the after-market following the seasonally strong quarter and trading at 23x EV/FCF, we believe risk/reward is balanced..." Maintains Hold, raises price target to $50.

  • Wells Fargo: "VMware's Q4 revenue and pro-forma EPS of $608.2MM/$0.31 were well above consensus of $553.7MM/$0.26, and Q1 revenue guidance of $580- 600MM is ahead of consensus $530.3MM. Positive trends in vSphere 4 uptake, and improving business tone drove the strength and give us more confidence in our projected 23.5% 2010 revenue growth estimate. Our Q1 revenue/pro-forma EPS move to $590MM/$0.27 ($515MM/$0.23 prior), our 2010 revenue/proforma EPS move to $2.5B/$1.18 ($2.23B/$1.05 prior) and our valuation range moves to $48-52 from $45-50. Our 2011 revenue/pro-forma EPS are $2.93B/$1.44. We remain positive on company fundamentals and growth prospects, but given the high valuation (~36x our 2010 EPS), we maintain a Market Perform rating." Maintains Market Perform, valuation range raised from $45-$50 to $48-$52.

  • Goldman Sachs: "VMware reported very strong 4Q results and lifted 2010 guidance...VMware's sizable outperformance in the quarter was driven by a "perfect storm" of positive factors including: improving IT spending, 4Q budget flush, and a big rebound in server shipments. The company‚Äôs promotion for Enterprise Plus upgrades also contributed strongly to the period, and ongoing upgrades, combined with further strength in server units, could continue to boost growth this year. Maintains Neutral, raises price target from $44 to $49.

  • Auriga: "...while we had expected a strong all-around Q4, we underestimated the magnitude...we continue to question VMW's future margin expansion potential, which we believe is likely capped at the mid-to-high 20% level for at least the next two years. Meanwhile, revenue guidance for Q1 and the full 2010 year was, surprisingly, much better than the Street expected. While the guidance is clearly a near-term positive, we have concerns that the company's growth trajectory could disappoint high investor expectations as the year proceeds. " Maintains Sell, raises price target from $35 to $41.

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