VMWare Inc. Stock Buy Recommendation Reiterated (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 reiterated by TheStreet Ratings as a buy with a ratings score of B . The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

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Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 2.1%. Since the same quarter one year prior, revenues rose by 20.4%. 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 2.03, which demonstrates the ability of the company to cover short-term liquidity needs.
  • VMWARE INC's earnings per share declined by 12.2% 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 $1.67 versus $0.85 in the prior year. This year, the market expects an improvement in earnings ($2.82 versus $1.67).
  • The gross profit margin for VMWARE INC is currently very high, coming in at 88.20%. Regardless of VMW's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, VMW's net profit margin of 13.82% is significantly lower than the industry average.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

VMware, Inc. provides virtualization and virtualization-based cloud infrastructure solutions in the United States and internationally. VMWare has a market cap of $12.24 billion and is part of the technology sector and computer software & services industry. The company has a P/E ratio of 56, above the S&P 500 P/E ratio of 17.7. Shares are up 14% 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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