VMware Gets Wary Support From Analysts on Third-Quarter Results

While some analysts were impressed with VMware's earnings report, others say the results were 'a mixed bag.'
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Several analysts gave guarded praise to VMware  (VMW) - Get Report Wednesday after the cloud-computing company beat Wall Street's third-quarter earnings expectations .

Shares of the Palo Alto, Calif.-based company, which is a subsidiary of Dell Technologies  (DELL) - Get Report, were down 4.60% to $143.62 in pre-market trading.

VMware reported net income of $704 million, or $1.66 per share, up from $602 million, or $1.42 per share a year ago. FactSet's consensus called for earnings of $1.44 per share.

The combination of subscription and Software as a Service (SaaS) and license revenue came to $1.32 billion, an increase of 10% from a year ago. 

"The star of the show was the bottom-line performance as tighter expense controls led to a massive beat," wrote Wedbush analyst Daniel Ives, who maintains an outperform rating with a $175 price target, "which we believe is sustainable for the coming quarters and will be a focus of investors digesting results this morning along with continued SaaS growth which remains the strategic focus."

Meanwhile, Piper Sandler analyst James Fish raised his price target to $178 from $170, while keeping his overweight rating. 

The analyst said VMware's results "impressed" across sales and free cash flow, as double-digit license revenue growth continues to be driven by the ongoing shift towards subscription and was better than anticipated despite on-premise deal delays,

Analysts at Jefferies, who have a hold rating on the stock with a $160 price target, said the company has several initiatives at play to enable it to navigate hybrid cloud environments, but noted they want to see growth inflection before taking a more constructive view.

RBC analysts, who have an outperform rating on the company, raised their price target to $190 from $185 and said VMware should be in a good position to accelerate growth as demand normalizes. They said the guidance was seen as conservative, and a solid foundation to build from.

Stifel analyst Brad Reback wrote that VMware reported "respectable" third-quarter results and that he continues to believe the company is "solidly positioned" in an increasingly hybrid/multi-cloud world.

The analyst lowered his price target to $175 from $196, but kept a buy rating on the stock as said he remains a buyer following the quarterly report.

Lastly, Mizuho analyst Gregg Moskowitz cut his price target on VMware to $147 from $152, while keeping a neutral rating following what he called the company's "mixed bag" results. 

While VMware reported good revenue and earnings upside, Moskowitz said total and license billings missed Street expectations due to a coronavirus-related slowdown that affected the timing of large on-premise projects.