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Barclays’ View of VMware’s Reverse Merger with Dell

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Barclays considers VMware’s merger with the parent company as “obvious negative”

The brief analysis of VMware’s (VMW) offerings growth and traction along with its fiscal 4Q18 earnings indicated that the company’s stock should continue its upward trajectory. However, this didn’t happen with VMware stock. As VMware’s parent company, Dell’s strategic plans include a reverse merger with the former, which weighed on VMware stock.

In late February, Barclays analysts Raimo Lenschow, David Rainville, and Mohit Gogia noted that the fundamentals of VMware’s business instill confidence, but uncertainty over merger plans with Dell is creating volatility in the company’s stock price. Earlier in the series, we discussed the better-than-expected performance of VMware’s fiscal 4Q18 and 2018 earnings.
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The analysts wrote, “VMware continues to be an attractive fundamental investment given its undemanding valuation, combined with its growth and margin profile.” The note continued, “We also like the company’s hybrid cloud positioning here with its partnership with [Amazon Web Services]. However, we accept that the recent news flow around Dell will create more volatility in the shares until we get more clarity.”

VMware leads in private cloud

As the chart above by the RightScale 2018 State of the Cloud report shows, private cloud adoption increased across all providers. VMware’s vSphere with 66.0% adoption leads among the enterprises, and VMware vCloud Director with 38.0% came in second. OpenStack and Microsoft (MSFT) System Center each had 33.0% adoption.

While VMware stock is currently trading around ~$123.00, Barclays has a price target of $145.00 on the stock.

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