Market Overview

Patent Assignment Boosts VMware


By: Joel Elconin

VMware (NYSE: VMW) has been assigned a patent for methods and systems “for implementing private allocated networks in a virtual infrastructure.”

The announcement has propelled the issue through the major resistance at the 90 level, which has capped all rallies in the last eight trading sessions. The issue, trading at 92.79, has reached its highest level since January 28, 2013 when it peaked at 99.10.

The steep drop the next trading day was instigated by the company itself, which lowered guidance following the release of fourth quarter results.

As a result, Wall Street analysts ganged up on the issue with downgrades and lowering of price targets. In fact, the news prompted Goldman Sachs to remove the issue from its coveted Conviction Buy list while still maintaining its Buy rating.

Other notable firms piling on included Sterne Agee, Topeka Capital, Credit Suisse, Piper Jaffray, Jeffries, Morgan Stanley, Deutsche Bank, BMO and Wunderlich Securities who low balled all analysts with a 75 price target.

Following the abandonment by the Street, VMW continued to drift lower in volatile trading until it found major support at the 65 level mid-summer.

Shortly after the technical bottom was put in place, analysts reversed course following strong second quarter results. These firms include Nomura Securities, Raymond James, JG Capital and Jefferies. Jefferies became the most bullish in August when they raised VMW from Hold to Buy and raised the price target from 86.00 to 105.00.

On two separate occasions (September and October) VMW revisited the 90 level, only to have the rallies fizzle. In September, cautious words regarding potential upside for the issue by Cantor Fitzgerald analyst Brian White instigated a month long decline to 77.

In October, the issue surged back to 90 following better than expected third quarter results, but was followed immediately by profit-taking as a twelve point surge in only five trading sessions was deemed excessive.

The ensuing decline took the issue back to the support at the 77 level where it had previously found support. Once again, the issue rallied back to 90 and appeared to stalling for a third time until the favorable patent news hit the wires on Tuesday.

After opening modestly higher, VMW blasted through the multiple highs at 90 and has yet to find resistance, trading at the high of the day (93.85). Now the issue will be battling to reach the 98 level, which it tumbled from roughly one year ago.

With VMW being such a volatile issue and susceptible to wild swings following earnings and moves by analyst, investors may want to use a breach of the 90 level as possible cue to a quick downward move in the issue.

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