BOSTON ( TheStreet Ratings) -- VMware (VMW - Get Report) posted strong financial results in the third quarter after the stock-market close Monday, yet said 2012 might be challenging, given global economic concerns.
That's led to dissension among sell-side analysts.
analyst Heather Bellini, who had a "buy" rating and a $120 target on VMware, added the stock to her firm's so-called Conviction Buy List of favored companies. Bellini notes in her report: "We believe this remains a name that has one of the best growth profiles in enterprise tech for 2012 and will remain a share of wallet gainer despite a challenging macro environment."
Kash Rangan at
Bank of America
maintains his "buy" rating and a $104 price target. He downplays management's acknowledgment of global economic risks, noting that "VMW is not seeing project cancellations/deal push outs but [is] trying to be conservative."
On the other hand,
analyst Ross MacMillan cut his rating on the stock to "hold" from "buy," reducing his target to $90 from $100. "Overall, we see risk of less upside to estimates than previously assumed and given valuation, that's not enough for us."
Needham & Company
analyst Scott Zeller maintains a "buy" on VMware, yet he cut his price target from $120 to $105. "Q3 results were strong, but guidance for 4Q was only marginally above consensus revenue, and was a letdown from the last conference call."
So whom do you believe? There are worries about what management had to say regarding 2012, yet this is a company positioned to take advantage of continued momentum in the virtualization space.
As I mentioned in my previous article, the stock is priced at a premium (trading at nearly 40 times 2012 estimates), so at these levels, you are paying dearly for what appears to be only 20% growth going forward.
I tend to err on the side of caution with any stock facing increasing competition (especially now with the likes of free offerings from
) with evidence of growth that has potentially reached a peak. While I am impressed with VMware's recent performance, I would wait for a pullback before building any position in the stock.