PacCrest's Owens Sees 'Many Questions' For VMware Now

• VMware, Inc VMW shares are down 13 percent in the last six months, even after touching a high of $91.14 on August 3.
• Pacific Crests’ Rob Owens maintained an Overweight rating on the company, while reducing the price target from $105 to $95.
• The company needs to provide further clarity on the health of its business and the billings mismatch in 3Q, Owens said.

VMware preannounced 3Q revenues and earnings ahead of expectations. Although the company’s $1.672 billion revenue for the quarter was ahead of the high-end of the company’s guidance, billings growth fell short of the Pacific Crest estimate.

The shortfall in billings growth is likely to increase investor concerns over the company’s 2016 growth and annual guidance, analyst Rob Owens mentioned. The FCF estimates for 2015 and 2016 have been reduced from $3.57 to $3.20 and from $5.25 to $4.62, respectively.

Owens expects the acquisition of EMC Corporation EMC by Dell Inc. DELL to bring expanded go-to-market opportunities for VMware. “We believe this would be especially positive for end-user computing and vSAN, but could create opportunities across the portfolio if fully executed,” Owens added.

The Pacific Crest report noted that Dell is expected to issue a secondary stock to track VMware on the completion of the acquisition and added that this will increase the relative share float by over three times.

Although VMware’s long-term growth opportunities remain intact, the company needs to clarify the billings mismatch on its earnings call on October 20, Owens stated.