EMC Upgrade Sparks VMware

SAN FRANCISCO -- VMware(VMW Quote) got a boost Tuesday from an upgrade on parent company EMC(EMC Quote).

VMware's stock was up $5.37, or 9.4%, to $62.70 in recent midday trading. While Robert W. Baird initiated coverage of VMware Tuesday at neutral, Caris upgraded EMC to buy, based on the embedded value of VMware stock, according to Briefing.com.

EMC was up 67 cents, or 3.6%, to $19.32.

Computer storage company EMC retains 86% ownership of VMware, the Palo Alto, Calif., developer of virtualization software.

Caris concluded that VMware is worth about half of EMC's current share price and raised EMC's price target to $21 from $20.

A price of $62 gives VMware a forward P/E of 70. And given the entry of comparable but lower priced competitors such as privately held Virtual Iron and XenSource (just acquired by Citrix Systems(CTXS Quote)) into the virtualization market, VMware's stock may begin hitting valuation concerns.

VMware was offered at $29 a share at its initial public offering on Aug. 13. It closed its first trading day up 76% to $51.