VMware: Color on Quarter (123.66)
- Stifel downgrades VMW to Hold from Buy and lowers their tgt to $135 from $152 given the ongoing overhang from "potential business opportunities" being evaluated by parent company Dell Technologies (DVMT) and the potential impact it will likely have on VMware. VMware delivered a solid close to FY18 beating guidance, Stifel, and consensus estimates across all key metrics as the company continues to see solid traction and execution across its portfolio. On a fundamental basis, VMware has continued to execute well over the last year and they think hybrid cloud secular drivers along with increasing traction across the portfolio positions VMware well in FY19 and beyond. Shares trade at 10.6x CY19E EV/FCF but given the noise surrounding the company, they do not expect significant multiple expansion from current levels while the overhang persists and view Red Hat (RHT) as a better way to play the hybrid cloud theme.
- BMO cuts tgt to $138 from $142 based on the potential of some form of merger with Dell Technologies (DVMT). They think VMW's strong results and outlook highlight the broad-based strength across its portfolio, which offset some near-term weakness in compute. That said, we believe compute remains a long-term strategic value of VMW's core technology, consistent with their deep dive report on VMW's compute business. Based on the strong Q4 results, modest raise to FY19 estimates (largely due to the transition to 606 accounting), they would normally be raising their price target. While they acknowledge a difficult situation for VMW management, they don't think management's unwillingness to talk about arguably the most important issue facing the stock will alleviate recent concerns about merger implications.
- Mizuho raises tgt to $125 from $110. VMware reported results that showed upside to consensus on P&L and cash flow metrics. Demand environment seems to be healthy with ongoing traction of the broader product offering offsetting slower compute growth. The company maintained its full-year revenue growth outlook while moving margins modestly higher; cash flow forecast showed some upside as well. They remain on the sidelines as they think the stock is fully valued at current levels.
VMW down 2% premarket.