Running Of The Bulls: VMware Analysts Positive On Q1 Report Even As Investors Retreat

Virtualization software provider VMware, Inc. VMW reported strong fiscal first-quarter results, yet its shares came under pressure Friday.

The Analysts

Bank of America Merrill Lynch analyst Kash Rangan reiterated a Buy rating on VMware with a $225 price target on the shares of VMware.

BMO Capital Markets analyst Keith Bachman retained an Outperform rating and nudged up the price target from $195 to $198.

KeyBanc Capital Markets analyst Alex Kurtz reiterated an Outperform rating and lifted the price target from $206 to $214.

Wedbush analyst Daniel Ives maintained an Outperform rating and $210 price target.

BofA: Cloud, Billings Growth Create Setup For Continued Revenue Acceleration

VMware's first quarter showed an across-the-board beat, and the company maintained its 2020 guidance, Rangan said in a Friday note. Compute, NSX, vSAN and EUC continued to drive growth, he said.

Hybrid and SaaS subscriptions, especially the Amazon.com, Inc. AMZN AWS partnership billings, are a leading indicator of potential continued acceleration in VMware's revenue pool, the analyst said. 

VMware's exposure to China is about 3-4 percent of revenues, Rangan said.

"Strong performance is in line with our long-term thesis and we see positive setup in FY20E with expanded partnerships."

VMware Cloud and billings growth that exceeded revenue growth set the company up for possible continued revenue acceleration, the analyst said. 

See also: Raymond James Cuts VMWare Price Target, Says Dell Agreement Good For Shareholders

BMO Would Be More Aggressive On Pullbacks

VMware reported solid results, with 20-percent year-over-year normalized total billings growth and 17-percent normalized license billings growth, Bachman said in a Thursday note. 

These results come despite a slew of weak data-center-related reports in the past quarter, he said. 

BMO is bracing for a pause in the stock, given the company's status quo stance with respect to its 2020 guidance, the analyst said. The firm made only modest changes to its estimates.

"Given some reservations about if VMW can deliver upside to current FY20 guidance, we would likely be more aggressive on pullbacks."

KeyBanc: Strength In Non-Compute Products To Drive Upside

The above-consensus first-quarter billings were driven by strong enterprise agreement activity, which represented 43 percent of total bookings compared to 36 percent last year, Kurtz said in a Thursday note.

Among the core platforms, NSX grew 40 percent year-over-year and vSAN jumped 50 percent, he said. 

"We estimate NSX, vSAN, VMC, and EUC platforms are within 35-40% of total bookings and are driving larger deal flow with 16 deals over $10M vs. five deals a year ago."

KeyBanc cited ongoing strength in non-compute product lines that are likely to drive continued upside in 2020 in raising its price target. 

Wedbush: Moves To Cloud A Clear Catalyst

The AWS partnership is starting to kick into the next gear and presents a unique growth opportunity, Ives said in a Friday note. 

VMware's efforts to position itself as the key engine and virtualization platform for transformational moves to the cloud is a clear catalyst for growth heading into 2020 and beyond, the analyst said.

" ... We remain very positive on VMware's technology and execution and believe it is uniquely well positioned to be a clear leader in enabling hybrid cloud deployments with incremental growth opportunities around NSX/vSAN, Dell Technologies Inc DELL revenue synergies humming, the AWS partnership and Microsoft Corporation MSFT now also in its back pocket, and ELA renewal benefits that could result in further upside to FY20 Street estimates."

The Price Action

VMware shares were slipping by 6.6 percent to $178.25 at the time of publication Friday. 

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