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 TradingBlock.com. Powered by TradingBlock's TradeBuilder.
|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%|
* Click link to access TradeBuilder details on TradingBlock.com. Must have Instant or Actual account. Subject to change due to changing market conditions. Click here to view risks regarding selling stock short.
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