JPMorgan Shares Several Reasons VMware Is More Attractive Now Than A Year Ago

Prior to restriction, JPMorgan has a Neutral rating and December 2015 price target of $88 on the stock.

"Our most recent survey work foreshadowed an improvement prior to Q2 earnings as VMware partners grew their practices in the double digits, representing an uptick from prior quarters of single-digit growth," analyst Mark Murphy wrote in a note.

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In addition, the analyst said partner interviews highlight strength in emerging products, including vSAN and NSX. He now believes VMware's hyper-converged appliance, VxRail, stands to enter a phase of similar "tornado" growth and market adoption. VxRail was co-developed by EMC, which was bought by Dell.

During the second-quarter call, VMware reported NSX bookings had more than doubled year-over-year, with the number of customers now exceeding 1,700 — up from 700 customers in the same quarter last year.

Additionally, VMware indicated that vSAN is now being used by more than 5,000 customers, up from 3,500 customers a quarter prior, and hyper-converged license bookings, including vSAN and VxRail software, grew more than 200 percent year-over-year in the second quarter.

Murphy also mentioned Dell's comments that its global distribution network can lead to $1 billion of incremental VMware revenue, attainable over the course of several years.

Looking Forward

Looking ahead, the analyst noted that the Cross Cloud services of VMware could be the company's next leg of growth even if it takes time to ramp.

That said, Murphy said the current valuation is not pricing in these scenarios.

"If we compare VMW's valuation with that of other large-cap software companies of similar growth and scale, we observe that VMW's ~10x EV/OCF is among the most attractive and ~35 percent below peers," Murphy highlighted.

At time of writing, shares of VMware gained 1.86 percent to $74.11.