Drexel Hamilton Calls VMware Valuation 'Extremely Attractive On Standalone Basis'

• Shares of VMware, Inc. VMW are down 26 percent since September 4 when they traded at around $80.
• Drexel Hamilton’s Brian J. White maintained a Buy rating on the company, with a price target of $73.
• VMware’s stock is poised to benefit from the resolution of challenges surrounding the Dell/EMC deal, White believes.

Analyst Brian White mentioned that the deal between Dell Inc. DELL and EMC Corporation EMC cannot be completed without resolving issues around VMware. This positions VMware’s stock for an “attractive upside potential.”

“In our view, either the Dell/EMC deal is restructured around VMware (i.e., tracking stock or Virtustream) or we believe the deal will struggle to receive shareholder approval, outcomes that we believe are both favorable for VMware's stock at current levels,” White wrote.

VMware’s current stock valuation is attractive, the analyst mentioned, while adding that the shares have declined 24 percent since the announcement of the DELL/EMC deal on October 12. The company’s shares have also been hit by the soft 4Q15 outlook and the JV announcement with EMC around Virtustream.

“Moreover, we believe VMware's valuation is extremely attractive on a standalone basis at 11x our CY:16 EPS projection (ex-cash) and more than reflects the company’s portfolio transition,” the Drexel Hamilton report added.