VMware Q1 Will Be 'No Drama,' Says Citi

Citi commented on VMware, Inc. VMW Monday ahead of its Q1 results on Tuesday following the market close.

Analysts Walter H. Pritchard and Tyler Radke expected a quarter with “no drama" as checks suggested that business had been strong and that overall revenue guidance had been conservative.

“We continue to see significant success up-selling customers to vCloud suites and adding management tools. We believe this is the most important driver for FY15,” according to the analysts.

Pritchard did caution, however, that “visibility into large ELAs, a Q/Q swing factor at VMW” had been elusive and that a “large DoD deal that was supposed to close Q1 did not,” although the analysts did not expect management to be “banking on this to make Q1 numbers.”

Related Link: Nomura Is Going Contrarian On VMware

For Q1, the firm expected “little incremental fx impact and forecast revenue/EPS of $1.506B/$0.85.” For FY 2015, the analysts noted a modest incremental fx impact and expected revenue/EPS of $6.708B/$3.98 down from the previous $6.731B/$4.02 estimate.

Estimize Q1 consensus was for EPS of $0.87 on revenue of $1.514 billion. Wall Street consensus was EPS of $0.84 on revenue of $1.497 billion.

Pritchard felt that after the company raised its long-term guidance range in 1Q 2014 and then backed away from this range in August, to then miss Q1 and Q3 forecasts, “2014 exhausted investors and many have not come back to the stock.”

Looking ahead at the rest of 2015, Pritchard expected that “an inline or better Q1 and no fundamental change to annual guidance” would “help re-build credibility.”

The analysts concluded that stock was “not getting credit for double digit revenue growth with modestly expanding margins at 14x 2016 EV/FCF.” Although Pritchard had “some lingering cash flow quality concerns (long-term deferred a big source),” the analyst believed “the valuation is accounting for this already.”

The firm maintained a Buy rating on the stock and raised its price target from $99 to $105.

Heading into its earnings release, VMware, Inc. traded at $85.45, up 1.40 percent.