Story updated at 9:50 a.m. to reflect market activity.
VMWare fell -0.8% to $94.45 in morning trading.
The software company will struggle to meet consensus expectations in the upcoming quarters according to Wells Fargo analysts Jason Maynard, Karen Russillo, and Vilma Chuy.
"Mware has built a category dominating virtualization franchise but is increasingly reliant on new product adjacencies to maintain their growth and margin profile," the analysts wrote. "Our view is that new growth initiatives have significant potential but aren't growing fast enough or are large enough to offset natural market saturation in the core. We are comfortable with our Q2 forecast and guidance as we believe the June quarter was relatively sound and has the last easy license booking comp of the year (FQ2 13 -2%). Looking forward though, we don't expect much in the way of upside potential in FH2 2014 given the waning benefit of ELA's and very difficult comparisons to FH2 2013."
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Separately, 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 number of 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 good cash flow from operations. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- VMW's revenue growth has slightly outpaced the industry average of 7.9%. Since the same quarter one year prior, revenues rose by 14.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- VMW's debt-to-equity ratio is very low at 0.21 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 2.27, which demonstrates the ability of the company to cover short-term liquidity needs.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 48.76% over the past year, a rise that has exceeded that of the S&P 500 Index. 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 has improved earnings per share by 15.0% 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 ($3.52 versus $2.34).
- Net operating cash flow has increased to $750.00 million or 10.87% when compared to the same quarter last year. In addition, VMWARE INC has also modestly surpassed the industry average cash flow growth rate of 10.44%.
- You can view the full analysis from the report here: VMW Ratings Report