VMware 1Q22 Earnings to Rise Nearly 4%, Revenue to Jump 7%

The California-based tech giant VMware is expected to report its fiscal first-quarter of 2022 earnings of $1.58 per share, which represents year-over-year growth of about 4% from $1.52 per share seen in the same period a year ago.

The California-based cloud computing and software company would post revenue growth of nearly 7% to $2.9 billion. In the last four quarters, on average, the company has beaten earnings estimates over 18%.

On May 12, VMware’s board of directors announced Raghu Raghuram as its new CEO effective June 1, 2021.

“We are maintaining our $202 fair value estimate for narrow-moat VMware after the company announced that current COO Raghu Raghuram will become CEO and also released strong first-quarter preliminary results,” noted Mark Cash, senior equity analyst at Morningstar.

“Our expectation was for one of VMware’s two current COOs to become CEO, and we positively view the company tapping its leadership bench, given the moving pieces in the organization. VMware has various sizable franchises pivoting their offerings, is shifting toward subscriptions amid tight integration with cloud partners and is being spun off from Dell toward the end of 2021.”

VMware shares rose over 15% so far this year.

Analyst Comments

“With overhangs around the CEO transition and Dell ownership behind us, focus shifts to durability of growth. Our channel work speaks to improving, but not yet fully recovered fundamentals. While a positive indicator, investors likely await data on Cloud traction and margin durability,” noted Keith Weiss, equity analyst at Morgan Stanley.

“Investors are likely looking for revenue, margins, and EPS in-line with pre-announced numbers and through of the Q1 outperformance into an updated FY22 guidance. Within Q1 results, however, we also think the mix of license / Subscription & SaaS revenue will be important, as investors try to understand the pace of subscription transition and implications on topline and margins going forward.”

VMware Stock Price Forecast

Fifteen analysts who offered stock ratings for VMware in the last three months forecast the average price in 12 months of $170.08 with a high forecast of $180.00 and a low forecast of $150.00.

The average price target represents a 5.39% increase from the last price of $161.38. Of those 15 analysts, seven rated “Buy”, eight rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $156 with a high of $193 under a bull scenario and $94 under the worst-case scenario. The firm gave an “Equal-weight” rating on the technology company’s stock.

Several other analysts have also updated their stock outlook. VMware had its target price upped by Piper Sandler from $158 to $180. They currently have an overweight rating on the virtualization software provider’s stock. BMO Capital Markets lowered VMware from an outperform rating to a market perform rating and cut their price target for the stock to $148 from $157.

UBS Group cut their price target to $145 from $152 and set a neutral rating on the stock. Bank of America reaffirmed a neutral rating and set a $175 price target.

Check out FX Empire’s earnings calendar

VMware Shows Signs of Recovery But Margins and Management Remain Unresolved: Morgan Stanley

Morgan Stanley in its latest research note said their channel work on the California-based tech giant VMware pointed towards sequential improvement in the fourth quarter and similar expectations for the first quarter, though macro pressure still lingers.

On Thursday, Palo Alto cloud computing and software company is widely expected to report EPS of $2.05 per share in the fourth quarter. That was in line with Morgan Stanley’s forecasts of $2.05 per share.

The investment bank forecasts a total revenue of $3.23 billion, up 5.1% year-over-year, in line with the market consensus estimates of +5% y/y growth. Morgan Stanley forecasts EBIT of $1.09 billion (33.6% margin) to round out FY21 at $3.74 billion (32% margin), in line with guidance and consensus.

“Beyond an improving top line, however, the stock performance will likely be tied to two other factors: 1) margins – preliminary guidance suggesting margin compression of 4% points YoY in FY22, therefore heavily pressuring near-term EPS growth; and 2) management – with CFO Zane Rowe as interim CEO, VMware‘s Board is currently searching for a permanent replacement after Pat Gelsinger’s departure. As such, even with shares at 20x CY22e P/E, trading at a meaningful discount to the large-cap average of 29x, we remain ‘Equal-weight’ on these uncertainties,” wrote Keith Weiss, equity analyst at Morgan Stanley.

VMware’s shares, which declined about 8% in 2020, had risen over 3% so far this year. The stock closed 1.54% higher at $144.68 on Friday.

Seventeen analysts who offered stock ratings for VMware in the last three months forecast the average price in 12 months at $167.21 with a high forecast of $199.00 and a low forecast of $145.00.

The average price target represents a 15.57% increase from the last price of $144.68. From those 17 equity analysts, nine rated “Buy”, eight rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $156 with a high of $193 under a bull scenario and $94 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the IT company’s stock.

Other equity analysts also recently updated their stock outlook. Mizuho cut their target price on shares to $147 from $152 and set a “neutral” rating. Cleveland Research lowered shares to a “neutral” rating from a “buy”. Barclays dropped their price target to $180 from $187 and set an “overweight” rating. At last, Piper Sandler increased their price objective to $179 from $170.

“Improved Positioning Largely Priced In: Over the last several years, fast-growing ‘Act 2’ product categories including vSAN, NSX and EUC have scaled to drive a better growth profile at VMware. However, the necessity of further investment to improve secular positioning weighs on op margins and EPS growth leaving the stock expensive on a PEG basis,” Morgan Stanley’s Weiss added.

“With CBLK and PVTL acquisitions closed, we wait for evidence of VMW‘s expansion strategy into security and app dev to take hold, as early partner conversations have been positive. Current trade of 20x CY22 P/E is a discount to the large-cap SW average/median of 29x/31x, justified considering VMW‘s on-premise exposure and margin pressure in FY22.”

Earnings to Watch Next Week: Palo Alto Networks, Home Depot, Nvidia and Salesforce in Focus

Dell Reports Surprise Revenue Growth in Q3; Target Price $82

Dell Technologies Inc, an American multinational technology company headquartered in Texas, reported a surprise quarterly revenue growth of about 3% to $23.48 billion as demand for remote working devices and desktops and notebook computers increased during the COVID-19 pandemic.

The leader in digital transformation said its total revenue rose 3% to $23.5 billion in the three months ended October 30, beating market expectations of a drop of 4.4% to $21.85 billion. Diluted earnings per share up 64% to $1.08, non-GAAP diluted earnings per share up 16% to $2.03, in line with the Wall Street estimates.

“Dell had record shipments, revenue, and profitability for its computer division, helping make up for weakness experienced within the server and storage business unit. While the pandemic may only be a temporary gusty tailwind for computer demand, we believe Dell’s hybrid-cloud offerings can provide it with a sustainable presence in the IT infrastructure stack for customers. We are maintaining our $65 fair value estimate and see shares as fairly valued,” said Mark Cash, equity analyst at Morningstar.

Dell forecasts revenue to grow 3% to 4% in the fourth quarter, implying a range between $24.18 billion and $24.42 billion, higher than the market expectations of $23.09 billion.

“While explicit guidance was not provided for fiscal 2022, Dell is cautiously optimistic that the demand environment for IT spending is improving. The company also believes it may be on the cusp of achieving investment-grade credit quality, which is up to the agencies and will continue to prioritize paying down its obligations,” Morningstar’s Cash added.

Dell Technologies shares closed 1.37% higher at $70.33 on Tuesday; the stock is up over 35% so far this year.

Executive Comments

“We met unprecedented demand for remote work and learn solutions this quarter while increasing revenue to $23.5 billion. At the same time, we accelerated our as-a-Service strategy and hybrid cloud capabilities at the edge – positioning us to win in these growing markets and making it easy for customers to manage data and workloads across all their operations,” said Jeff Clarke, vice chairman and chief operating officer.

Dell Technologies Stores Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at $72.78 with a high forecast of $82.00 and a low forecast of $60.00. The average price target represents a 3.48% increase from the last price of $70.33. From those ten analysts, seven rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $82 with a high of $116 under a bull-case scenario and $39 under the worst-case scenario. The firm currently has an “Overweight” rating on the technology company’s stock. JP Morgan raised their target price to $80 from $70 and UBS assumed coverage with a buy rating and set the target price at $80.

Several other analysts have also upgraded their stock outlook. Evercore ISI raised their target price to $75 from $70; BofA Global Research upped their price objective to $75 from $70; Deutsche Bank increased their stock price forecast to $72 from $65; RBC raised their target price to $80 from $48; Citigroup upped their price target to $75 from $55.

Analyst Comments

“Dell is a full-stack technology provider managing more data than any other IT provider, which positions the company well to capitalize on the ‘Data Era’. A path to IG rating in the next ~12 months along with accelerating market share gains across ISG and CSG segments warrant a valuation in-line with peers,” said Katy Huberty, equity analyst at Morgan Stanley.

“Dell’s strategic evaluation of its VMware stake (announced 7/15/20) and commitment to go-to-market synergies positions the company to unlock trapped value while retaining operational exposure to a key asset. Our base case valuation assumes a 50% probability of a VMware spin, meanwhile, our bull case valuation assumes a 100% probability,” Huberty added.

Upside and Downside Risks

Risks to Upside: 1) VMware spin and cash dividend accelerate core debt pay down. 2) Faster recession recovery & pent up demand. 3) Stronger share gains across PCs, Servers and Storage – highlighted by Morgan Stanley.

Risks to Downside: 1) Dell and VMW don’t agree on terms for a VMW spin. 2) Longer recession accelerates public cloud migration & legacy server/storage declines. 3) Rate of share gains across servers & storage is short-lived. 4) Slower debt paydown vs guidance.

Check out FX Empire’s earnings calendar

Dell Technologies Exploring Options of $50 Billion Stake Spinoff in VMware

Dell Technologies Inc, an American multinational technology company headquartered in Texas, is exploring options of a spinoff for its $50 billion stake in VMware Inc to increase its stock value, according to a Wall Street Journal report.

The tech giant has recently sought options either to sell its existing stake or consider other options, including the full buyout of VMware. People familiar with the matter told the WSJ that the companies are working with outside advisers. The share offload will also come a long way in helping Dell to ease its $48 billion debt load.

However, both the companies are unlikely to ink a deal this year as the examinations are at an early stage and Dell may even choose to opt-out and do nothing.

The review is aimed at addressing the difference in Dell’s market value – roughly $36 billion as of June 23 and the 81% stake value in VMware. The gap indicates that Dell’s PC and data storage business is gaining very less or no attention in the market. However, dismantling the companies could add value further, the international daily newspaper based in New York City added.

Immediately after The Wall Street Journal reported on the review, investors’ optimism soared, pushing shares of both companies higher. On Tuesday, Dell shares jumped over 14%, following a 1.5% gain to close at $49.01, while VMware climbed 8% and closed about 1% higher $149.23.

Dell outlook and target price

Eight analysts forecast the average price in 12 months at $48.57 with a high of $55.00 and a low of $42.00. The average price target represents a -0.90% decrease from the last price of $49.01, according to Tipranks. From that, two analysts rated ‘Buy’, six rated ‘Hold’ and none rated ‘Sell’.

It is good to buy at the current level for the short-term as 20-day Moving Average and 20-200-day MACD Oscillator signals a buying opportunity.

On June 1, Citigroup raised price target to $55 from $40. Last month, Deutsche Bank raised price target to $55 from $52, Instinet raised to $55 from $35, Credit Suisse raised to $44 from $41 and Evercore ISI raised target price to $54 from $46.

VMware outlook and target price

Eighteen analysts forecast the average price in 12 months at $170.31 with a high of $200.00 and a low of $140.00. The average price target represents a 14.13% increase from the last price of $149.23, according to Tipranks. From that, twelve analysts rated ‘Buy’, six rated ‘Hold’ and none rated ‘Sell’.

It is good to buy at the current level as 50-day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity. Today, Stifel raised to ‘Buy’ from ‘Hold’; raised target price to $196 from $166. In May, CCFRA raised to ‘Buy’ from ‘Hold’, raising the target price to $180 from $154; BMO to $165 from $152 and Wells Fargo raises to $200 from $190.