Here's What You Need To Know Ahead Of VMware's Tuesday Earnings Report

Apr.21.14 | About: VMware, Inc. (VMW)

VMware Inc. (NYSE:VMW) is set to report FQ1 2014 earnings after the market closes on Tuesday, April 22nd. VMware is an American software company that specializes in cloud and virtualization technology and services. Over the past 2 years, VMware has enjoyed steadily growing revenue and profitability. So far, in early 2014 VMware stock is up significantly (18%) but has been volatile as well. This quarter Wall Street is expecting a year over year EPS gain of 5c per share and yoy revenue growth of 13.5% while the Estimize community has slightly higher expectations on both the top and bottom line. Here's what investors expect from VMware Tuesday afternoon.

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The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors. Click to enlarge

(Click Here to see Estimates and Interactive Features for VMware)

The current Wall Street consensus expectation is for VMware to report 79c EPS and $1.352B revenue, while the current Estimize.com consensus from 26 Buy Side and Independent contributing analysts is 80c EPS and $1.358B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting VMware to beat the Wall Street consensus on both EPS and revenue by a small margin.

Over the previous 6 quarters, the consensus from Estimize.com has been more accurate than Wall Street in forecasting VMW's EPS every time and has been more accurate in forecasting revenue 4 times. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non-professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly, it does a better job of representing the market's actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case, we are seeing a small differential between the two groups' expectations.Click to enlarge

The distribution of estimates published by analysts on the Estimize.com platform range from 76c to 86c EPS and from $1.347B to $1.407B in revenues. This quarter we're seeing a larger than usual distribution of estimates on VMW.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings. Click to enlarge

Over the past 4 months, the Wall Street EPS forecast dropped from 83c to 79c, while the Estimize consensus both started and ended the period at 80c. Meanwhile, the Wall Street revenue consensus increased from $1.342B to $1.353B while the Estimize consensus increased from $2.805B to $2.843B. Timeliness is correlated with accuracy and analyst revisions at the end of the quarter were relatively flat. Click to enlarge

The analyst with the highest estimate confidence rating this quarter is TechStockRadar, who projects 80c EPS and $1.363B in revenue. TechStockRadar is ranked 16th overall among over 4,150 contributing analysts. Over the past 2 years, TechStockRadar has been more accurate than Wall Street in forecasting EPS and revenue an impressive 66% and 64% of the time respectively throughout 402 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research, which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, TechStockRadar is expecting VMware to report in-line with the Estimize EPS consensus while exceeding revenue expectations by a small margin.Click to enlarge

Last quarter the Estimize community nailed the EPS number from VMware and was also extremely accurate in predicting revenue. This time around, the community expects VMware to report 14% revenue yoy revenue growth, which is in-line with recent quarters. However, the community also forecasts a 6c per share gain in EPS which would represent slowing growth in earnings.

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