What Drove VMware’s Fiscal 2Q17 Results?

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Part 17
What Drove VMware’s Fiscal 2Q17 Results? PART 17 OF 20

What Do Analysts Think of VMware’s Prospects?

VMware’s “tipping point”

So far in the series, we’ve discussed VMware’s (VMW) fiscal 2Q18 results and its continued focus on new offerings, strategic partnerships, and the hybrid cloud space. VMware’s better-than-expected fiscal 2Q18 results prompted Bank of America to have a bullish stance on VMware stock. Bank of America upgraded VMware’s stock rating from “neutral” to “buy,” and it raised its price target from $108 to $120.

VMware transition toward the recurring subscription business model across the entire offerings portfolio—including vSAN NSX and likely VMW Cloud on AWS—drove confidence with respect to the company’s success.

What Do Analysts Think of VMware&#8217;s Prospects?

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VMware’s recurring revenue dominance compared to license revenues in overall revenues also improved the market’s outlook toward VMware. The company’s Services or Subscription revenues reached ~$1.2 billion while its Licensing revenues totaled $610.0 million in fiscal 2Q18.

Kash Rangan, an analyst at Bank of America, said, “We believe VMW has hit a tipping point whereby licenses from new and faster growing products such as NSX, vSAN, EUC are ~50% of license revenues and will increasingly inflect growth and plant it more firmly in double-digit territory.” He added, “This would potentially reduce license cyclicality.”

VMware’s improved price targets

MKM Partners also raised its price target on VMware stock from $110 to $120. The research firm holds a “buy” rating on VMware stock.

Baird raised its price target on VMware stock from $115 to $120. Jayson Noland, an analyst with Baird, stated “Our price target of $120 is based on 15x F18E FCF/share plus net cash per share. VMW’s multi-year valuation range is 9x–18x FCF and we believe the upper end of this range is warranted given the improving competitive position of the company.”


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