Analysts Debate What To Do With VMware After Cloud Stock Reaches New Altitudes

Enterprise software company VMware, Inc. VMW reported fourth-quarter results Thursday that which expectations and helped push the stock to new all-time-highs. Here's how VMWare analysts on the Street reacted.

The Analysts

• Wedbush's Daniel Ives maintains an Outperform rating on VMware with a price target lifted from $173 to $190.
• Wells Fargo's Philip Winslow maintains at Market Perform, price target lifted from $155 to $180.
• Bank of America Merrill Lynch's Kash Rangan maintains at Buy, unchanged $200 price target.
• KeyBanc Capital Markets' Alex Kurtz maintains at Overweight, price target lifted from $172 to $192.
• BMO Capital Markets' Keith Bachman maintains at Outperform, price target lifted from $170 to $195.
• Raymond James' Michael Turits maintains at Outperform, price target lifted from $163 to $196.

Wedbush: 'Major Mojo'

VMware's fourth quarter shows the company is heading into the new fiscal year with "major mojo," Ives said in a research report. Some of the analyst's notable takeaways are:

• License revenue growth of 21 percent.
• Bookings growth of over 40 percent.
• NSX being included in nine of the top 10 deals with a customer base over 10,000.

VMware's momentum can continue throughout the new fiscal year from product growth, with vSAN and NSX being "front and center," Ives said. The company can also generate revenue from more cross-selling opportunities, which should have investors "very positive" on the outlook, he said. 

Wells Fargo: 'Big Finish' To 2019

VMware's "big finish" to fiscal 2019 with "no notable negative" readouts in the quarter, Winslow said in a research report. The company has three growth opportunities ahead that require monitoring and are key to sustainable revenue growth, the analyst said:

• Recent performance in the core server compute business.
• The traction of new products like NSX.
• An expanding partnership with Amazon AWS.

Related Link: Analysts Raise VMware Price Targets After Q3 Beat-And-Raise

BofA: Double-Digit Growth Ahead

VMware should be able to sustain a double-digit growth rate as the revenue mix hits a "tipping point," Rangan said in a research report. The earnings report shows that new and faster-growing products account for 60 percent of total license revenue, while compute revenue accounts for 30-35 percent of license bookings — which marks an improvement from 50 percent last year, he said. 

Looking forward to fiscal 2023, VMWare could see revenue of $15 billion and generate $10 to $11 in earnings per share, according to BofA. 

KeyBanc: A Look At New Deals

VMware saw its biggest deal flow, with 23 new deals valued at more than $10 million versus 16 last year, Kurtz said in a research report. The company also recorded its largest vSAN deal to date, along with a $20-million VMware/AWS deal that is a net positive to VMware, the analyst said. 

VMware said it reached the $1-billion revenue synergy goal with Dell faster than expected, removing a "lingering question" for some investors, Kurtz said. 

BMO: A Look At Guidance

VMware left its fiscal 2020 revenue guidance unchanged at 12 percent despite a strong beat in the fourth quarter, Bachman said in a research report. Management has only lifted its fiscal 2020 revenue outlook by around 1 percent since its November guidance he said. 

The company also guided its license revenue to grow 12.8 percent in fiscal 2020, which marks a slowdown from 18.4 percent in fiscal 2019, but is nevertheless "impressive," the analyst said. 

Raymond James: Modest Premium Justified

VMware's "solid" beat-and-raise report shows an acceleration in revenue, licensing and billings despite a tough year-over-year comparison, Turits said in a research report. The company also improved its position in the hybrid cloud segment, and recent reports of a joint hybrid partnership with Microsoft higlight the opportunity to grow beyond the on-premise business, the analyst said. 

The research firm's revised $196 price target is based on 19.5 times fiscal 2021 estimated free cash flow, which is a modest premium to the large-cap mean of 17.2 times and a three-turn discount to the S&P 500 mean at 22.8 times.

Price Action

VMware shares were up 3.9 percent at $178.51 at the time of publication Friday. 

Related Link: Raymond James Cuts VMWare Price Target, Says Dell Agreement Good For Shareholders