VMware Soars to New High
SAN FRANCISCO -- Shares of virtualization darling VMware (VMW) broke through to a new high Monday after bullish coverage initiations from seven of the company's IPO underwriters.
The stock was recently up $5.86, or 7.4%, to $85.17.
Given VMWare's ever-rising price target, analysts may be feeling pressured to meet loftier views of the stock's potential.While UBS' 12-month target looks bullish at $92, it's tame next to Citigoup's $100 target price. Bank of America valued the stock at $75 and gave it one of four neutral or hold ratings Monday. Three analysts ranked the stock a buy. VMware is an investment-banking client of all the firms. Previous coverage by analysts whose firms did not participate in the IPO give the stock a more moderate $66 median price target, according to Thomson Financial. In explaining her $92 target, UBS analyst Heather Bellini compared VMware to Google (GOOG) "as a sanity check," because both companies are the leaders in fast-growth markets. "We believe VMware could post similar upside to estimates as Google did in the first year after going public," she wrote. Google beat earnings estimates by about 30% on average during its first year. Citigroup analyst Brent Thill noted his $100 price target gives credit to a strong growth rate and assumes a price-to-earnings-to-growth (PEG) ratio of 2.3 -- assuming a three-year earnings growth rate of 39% and that the stock trades at 89 times earnings. Thill gave the stock a high risk rating.
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