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I have had a stake in VMware (NYSE:VMW) via owning EMC Corp (NYSE:EMC) for quite some time now. EMC owns 80% of VMW and its stock has lower multiples. However, with the recent decline in VMW's stock price as well as some positive catalysts & analyst comments; owning this fast growing leader in server virtualization looks like a good pure play by itself these days.

Recent positives for VMW -

  • ISI Group upgraded the shares from "Buy" to "Strong Buy" citing overly negative investor sentiment. It also raised its price target to $130 from $115.
  • Pacific Crest noted VMW has a great opportunity to capitalized on the "hybrid cloud" with some of its new products. Pacific Crest thinks is a $14B opportunity and recommended VMW as a "Buy".
  • TheStreet also just reiterated its "Buy" rating on VMW.
  • EMC recently announced several units called the pivotal initiative will be taken public. EMC will own 69% of the company and VMW will retain 31%. This new company should have $300mm in sales in 2013. The IPO should be hot as it will be a "Big Data" play.

VMware provides virtualization infrastructure solutions in the United States and internationally. The company's solutions enable organizations to aggregate multiple servers, storage infrastructure, and networks together into shared pools of capacity that can be allocated to applications as needed.

4 additional reasons VMW is a good growth play at $78 a share:

  1. Analysts predict the company will grow revenues at over a 14% CAGR over the next two years and the stock sports a five year projected PEG near 1 (1.16).
  2. Consensus earnings estimates for FY2013 and FY2014 have ticked up over the last month. VMW has also beat earnings estimates for each of the last twelve quarters.
  3. The company has a robust balance sheet with over $4B of net cash on its books (just under 15% of market capitalization).
  4. The 37 analysts that cover the stock have a $100 median price target on the shares. Credit Suisse has an "Outperform" rating and a $110 price target on the shares.
Source: VMware: Software Leader Is Hot Again