Server virtualization software company VMware (VMW) declared impressive third-quarter of fiscal 2022 results on November 23, with both the top and the bottom lines outpacing the Street consensus estimates. A decent fiscal 4Q guidance and raised expectations for FY22 were the highlights of the quarter.
Expert Observes Upsides
Monness Crespi analyst Brian White was upbeat about the Q3 performance. “The tone of the call was constructive with VMware finally free from Dell Technologies (DELL), executing well, and continuing to introduce new innovations,” he said. (See Analysts’ Top Stocks on TipRanks)
Unfortunately, the solid results failed to excite investors and did not stir any meaningful price change. Yet, the lackluster stock price performance is exactly the thing White appreciates. “With a more muted stock price performance relative to its software peers, VMware’s valuation has become more palatable compared to recent years and may tempt value investors,” he observed.
Nonetheless, White chose to be cautious with his recommendation and kept his Hold rating unchanged.
Subscription and SaaS Looking Up
A large chunk of VMware’s revenues come from its Subscription & SaaS (Software-as-a-service) segment. This segment had accounted for 22% of total revenues in the fiscal year 2021.
In the fiscal Q3, the segment’s revenues of $820 million grew 21% year-over-year, and also exceeded White’s expectations of $799.3 million.
Moreover, revenues from subscription & SaaS and license came above VMware’s Q3 guidance, and that indicates growing momentum.
Wall Street’s Take
The Wall Street analyst consensus also has a cautious but optimistic stance on VMware, with a Moderate Buy rating based on 8 Buys and 9 Holds. The average VMware price target of $149.38 indicates an upside potential of 25.85%.
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Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.
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