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Why VMWare (VMW) Stock Is Down Today

Stocks in this article: VMW

NEW YORK (TheStreet) -- VMWare (VMW) was falling -10% to $95.65 Wednesday on news that there was a delay in closing some of the company's enterprise license agreements in the first quarter.

Those delays came as customers looked to sign expanded deals. On a conference call with analysts COO Carl Eschenbach said the company didn't lose any deals to competitors. "We're seeing size and scope of our ELAs continue to grow as customers look to incorporate all of our products and even some of our new products... we're just in much deeper conversations with our customers,"Eschenbach said.

While first-quarter license revenue grew 15% from the year-ago quarter to $561 million VMWare said total booking grew less than 10%. Long-term license agreements, which include maintenance and support, are responsible for a quarter to a third of VMWare's sales according to Reuters.

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TheStreet Ratings team rates VMWARE INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate VMWARE INC (VMW) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. 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, solid stock price performance, impressive record of earnings per share growth and compelling growth in net income. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • VMW's revenue growth has slightly outpaced the industry average of 11.6%. Since the same quarter one year prior, revenues rose by 14.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • VMW's debt-to-equity ratio is very low at 0.07 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 2.25, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Powered by its strong earnings growth of 63.82% and other important driving factors, this stock has surged by 30.45% over the past year, outperforming the rise in the S&P 500 Index during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • VMWARE INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, VMWARE INC increased its bottom line by earning $2.34 versus $1.71 in the prior year. This year, the market expects an improvement in earnings ($3.54 versus $2.34).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Software industry. The net income increased by 62.8% when compared to the same quarter one year prior, rising from $205.77 million to $335.00 million.
  • You can view the full analysis from the report here: VMW Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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