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VMware Cloud Business Lifts Q2 Outlook Above Expectations; Stock Up

Investors rushed to buy VMware ( VMW ) shares early in the stock market today , driving the price up 14% to a four-month high above 59, after the virtualization software leader raised its guidance late Tuesday. The company increased adjusted earnings guidance for the year by 2 cents to a range of $4.09 to $4.18 vs. the $4.11 modeled by Wall Street. It also announced plans to buy back $1.2 billion worth of shares in fiscal 2016, “in light of the depressed valuation” of the stock, reported William Blair analyst Jason Ader in a Wednesday research note. Shares had fallen 32% for the past 12 months as of Tuesday’s close. Majority owner EMC ( EMC ), meanwhile, was up nearly 3% in midday trading Wednesday after it reported Q1 revenue grew 5% to $1.59 billion, ahead of Wall Street consensus by $14 million, while non-GAAP EPS flattened to 86 cents, 2 cents better than analysts had expected. EMC is in the process of being acquired by privately held Dell. VMware’s virtualization software lets users see and manipulate multiple operating systems simultaneously from one computer. William Blair’s Ader noted that VMware’s traditional license revenue of $572 million in Q1 was up 1% in constant currency, although it fell 1% after foreign-exchange effects. VMWare’s growth was in the cloud, its multiyear strategic destination. “Q1 was a good start to 2016,” VMware CEO Pat Gelsinger said in the company’s earnings release. “We made solid progress with our strategic goal of building momentum for our new growth businesses and in the cloud. We continue to see momentum across our portfolio of growth products and businesses, including NSX, Virtual SAN and End-User Computing.” In February, VMware partnered with IBM ( IBM ) to allow enterprise customers to extend their workloads to the cloud from on-premise software-defined data centers. For the current Q2, VMware guided non-GAAP EPS to 94 cents to 97 cents. It guided Q2 total revenue up 4% to 7% to $1.66 billion to $1.71 billion. Analysts polled by Thomson Reuters expect 94 cents per share minus items on $1.66 billion. William Blair reiterated its market perform rating on VMware stock but doesn’t have a price target. Summit Research Partners analyst Srini Nandury maintained a hold rating, but he raised his price target on the name to 45 from 40 “to reflect solid execution and the recent multiple expansion experienced across the tech landscape following the January/February sell-off. “Despite a slew of executive departures … we believe the company needs to execute well on its growth areas.” FBN Securities analyst Shebly Seyrafi reiterated an outperform rating and raised his VMware price target to 70 from 60. “We continue to like the company’s strong (free cash flow) yield,” he said in a research note.

Intuitive Surgical Q1 Impresses Wall Street, As Stock Hits New High

Surgical-robot maker Intuitive Surgical ( ISRG ) received multiple price target hikes from Wall Street, as its stock hit a new high Wednesday, following its Q1 earnings report late Tuesday. As IBD reported, Intuitive Surgical’s Q1 earnings beat estimates , but what really interested analysts was the quarter’s 17% procedure growth. Intuitive Surgical normally sells only about 100 of its pricey da Vinci robotic systems per quarter, so surgical procedures using the company’s consumable accessories and services are key to steady revenue. Management raised procedure-growth guidance for the year to 12% to 14%, from the previous 9% to 12%. Operating expenses increased, and Intuitive Surgical’s management also raised its opex guidance for the year to 12% to 15% of revenue, up from 9% to 13% previously. However, it likewise raised its gross-margin guidance to 69% to 70%, from 68% to 69.5%. Intuitive Surgical is on IBD’s Big Cap 20. Who else makes the grade? “Intuitive Surgical’s impressive Q1 procedure growth is consistent with our recent positive general surgeon checks,” wrote RBC Capital Markets analyst Brandon Henry as he raised his price target to 640 from 610 while maintaining a sector perform rating. “While Intuitive Surgical is accelerating operating expense spend, we believe these investments should drive increased future robotics adoption and help the company maintain its superior position in the robotics market, despite upcoming competition.” The company has no competitors at present, but Medtronic ( MDT ), TransEnterix ( TRXC ) and Johnson & Johnson ( JNJ ) partnering with Alphabet ‘s ( GOOGL ) Verily division are all developing their own robotic surgery systems. Leerink analyst Richard Newitter lifted his Intuitive Surgical price target to 710 from 700 while maintaining an outperform rating. “A now stronger outlook for Urology/GYN and general surgery gave management confidence to raise ’16 procedure guidance,” Newitter wrote in his research note. “Also, management seems to be talking more aggressively about da Vinci use in thoracic, a procedure area we think may be around the corner as an emerging growth driver.” Piper Jaffray analyst Matt O’Brien raised his price target to 610 from 550. He rates the stock neutral. Intuitive Surgical stock hit a record high of 654.88 early on the stock market today , pushing it up 20% for the year. In morning trading, shares were up 4.5% near 652.

Check Point’s Slow Q2 Guidance Drags On Rival Palo Alto Networks

Check Point Software Technology ( CHKP ) stock fell Wednesday, tugging down shares of rival Palo Alto Networks ( PANW ) as well, after the No. 1 cybersecurity firm by market value topped earnings views by 3 cents but guided to decelerating Q2 metrics. In early trading on the stock market today , Check Point shares plunged as much as 6.6% before recovering a bit to a 4.5% loss Wednesday morning, near 85. Palo Alto Networks stock was down nearly 2%. Shares of both underperformed IBD’s 25-company Computer Software-Security industry group, which was weaker by nearly 1% Wednesday morning. The group is down 15% this year vs. a 20% drop in Palo Alto Networks stock and a 9% jump in Check Point stock. For Q1, Check Point reported $404 million in sales and $1.06 earnings per share ex items, up a respective 9% and 11% vs. the year-earlier period. The consensus of 34 analysts polled by Thomson Reuters modeled $404 million and $1.03. Check Point has reported 9% sales growth for the past six quarters, and EPS minus items has grown by double digits for the past five consecutive quarters. The company modeled $405 million to $435 million in current-quarter sales and $1.02 to $1.09 EPS minus items. At the midpoints, that’s up 6% and 7%, respectively. But the midpoints of both measures missed consensus views for $428 million and $1.09. And Check Point’s guidance reflects EPS deceleration from double digits and a decline from the company’s typical 9% sales growth. Check Point maintained its full-year guidance for $1.72 billion to $1.79 billion in sales, up 8%, and $4.45-$4.60 EPS minus items, up 9%. FBN analyst Shebly Seyrafi retained an outperform rating and 100 price target on Check Point stock, noting that the company typically delivers results at the high end of guidance. “Our own channel checks on Check Point noted that Check Point was discounting more in order to compete more effectively against Palo Alto Networks, Fortinet ( FTNT ) and others,” he wrote in a research report.