VMware Cloud Business Lifts Q2 Outlook Above Expectations; Stock Up

By | April 20, 2016

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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. Scalper1 News

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