Despite A Pristine Q4, Stifel Downgrades VMWare On Overhang From Parent Dell Technologies (NYSE:DVMT)

VMware, Inc. VMW reported fourth-quarter results after the close Thursday, with 14-percent revenue growth, 20-percent license revenue growth and an 18-percent increase in non-GAAP earnings per share.

Notwithstanding the stellar results, the stock reacted with a steep move to the downside.

The Analyst

Stifel analyst Brad Reback downgraded VMware from Buy to Hold and lowered the price target from $152 to $135.

The Thesis

VMware, despite forecast-beating results, is likely to be weighed down by the ongoing overhang from "potential business opportunities" being evaluated by parent company Dell Technologies Inc DVMT and the impact it will likely have on the company, Reback said in a Thursday note.

The earnings beat came about due to top-line upside and the leverage in the model, the analyst said. Cash flow from operations and free cash flow also exceeded estimates, he said. 

"VMware delivered solid growth across products and geographies along with continued commentary around a healthy spending environment as organizations undergo digital transformation to drive agility," Reback said. 

Stifel said it believes VMware's results along with secular tailwinds continue to bode well for Oracle Corporation ORCL and Red Hat Inc RHT when they report February quarter-end earnings in a few weeks.

VMware's positive commentary about hybrid cloud is a plus for Microsoft Corporation MSFT, given its strong hybrid cloud portfolio, Reback said. 

The Price Action

VMware shares were up about 36 percent over the past year up until Thursday.

At the time of writing, the shares were slipping 5.4 percent to $116.98. 

Related Links:

UBS: The Street Isn't Pricing In Oracle's Cloud Transition

Nomura: Red Hat Could Have $66 Billion Total Addressable Market By 2020

Posted In: Brad RebackStifelAnalyst ColorDowngradesPrice TargetAnalyst Ratings

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.