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VMware Inc. Stock Downgraded (VMW)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- VMware (NYSE: VMW) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity.

  • EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 2.8%. Since the same quarter one year prior, revenues rose by 12.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • VMW's debt-to-equity ratio is very low at 0.08 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, VMW has a quick ratio of 2.02, which demonstrates the ability of the company to cover short-term liquidity needs.
  • VMWARE INC's earnings per share declined by 9.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, VMWARE INC increased its bottom line by earning $1.71 versus $1.67 in the prior year. This year, the market expects an improvement in earnings ($3.29 versus $1.71).
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Software industry and the overall market, VMWARE INC's return on equity is below that of both the industry average and the S&P 500.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, VMW has underperformed the S&P 500 Index, declining 23.19% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
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VMware, Inc. provides virtualization infrastructure solutions in the United States and internationally. The company has a P/E ratio of 41.6, above the S&P 500 P/E ratio of 17.7. VMware has a market cap of $8.96 billion and is part of the technology sector and computer software & services industry. Shares are down 25.4% year to date as of the close of trading on Wednesday.

You can view the full VMware Ratings Report or get investment ideas from our investment research center.

-- Written by a member of TheStreet Ratings Staff

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