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VMWare and cloud computing poised for continued growth

|Includes: ORCL, VMware, Inc. (VMW)

Tim Biggam, TradingBlock  (December 27, 2011, 3:20pm CST) 

Symbol Analyst Target Price Target Date
VMW 102.00 July 20, 2012

VMware, Inc. (ticker: VMW) is a provider of virtualization solutions from the desktop to the data center. The Company’s suite of virtualization solutions addresses a range of complex information technology problems that include cost and operational inefficiencies, facilitating access to cloud computing capacity, business continuity, software lifecycle management, and corporate computing device management.

It works closely with more than 1,700 technology partners, including server, microprocessor, storage, networking and software vendors. Its solutions are based upon its core virtualization technology and are organized into four main product groups: Cloud Infrastructure, Cloud Application Platform, End-User Computing, and Virtualization and Cloud Management.

After a sharp sell-off following the Oracle (ticker: ORCL) earnings debacle, VMW is gaining back most of those losses. Several analysts have upped the shares based on valuation, and we tend to agree. Given the 35% growth rate in VMW earnings, its forward P/E of 34 seems reasonable. With nearly 9.50 per share in cash, the company’s forward P/E ex-cash is less than 30.

Technically, the shares have held support three times at the 76 level, each time bouncing sharply off the support level to move back to the previous highs.

Given VMWare’s dominance in the fast-growing cloud computing space, we look for the stock to head back to the old highs of 102 by July expiration.

Play of the Day

Based on VMware's (ticker: VMW) current market price of $85.12 and using a target price of $102.00, a target date of July 20, 2012 and $10,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date.   

Click on the strategy name below to access trade details using TradeBuilder on
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Strategy (click for details) % Return at Target Probability of breaking 
even or better
Buy Jul Call Spread +158% 48%
Sell Jul Iron Condor +152% 67%
Sell Jul Put Spread +92% 55%
Buy Stock +20% 60%

 * Click link to access TradeBuilder details on Must have Instant or Actual account. Subject to change due to changing market conditions.  Click here to view risks regarding selling stock short.

DISCLAIMER: This content is provided for educational and informational purposes only. Evaluate any strategy prior to use to understand risk and suitability. TradingBlock does not endorse or warrant any Market Analyst content, service or product. Use this content at your own risk without guarantee or warranty of any kind from TradingBlock. Tim Biggam is a TradingBlock registered representative. He is not compensated by TradingBlock for any market research or analysis services.