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VMware slides to seven-month lows after Q3 earnings, acquisitions

Aug. 23, 2019 10:48 AM ETVMware, Inc. (VMW) Stock, PVTL Stock, CBLK StockVMW, PVTL, CBLKBy: Carl Surran, SA News Editor15 Comments
  • VMware (VMW -6.9%) shares slump to their lowest levels since January after reporting better than expected Q3 earnings and announcing nearly $5B in deals for Pivotal Software (PVTL +8.5%) and Carbon Black (CBLK +6.1%).
  • BMO analysts say they thought VMW would reduce Q4 guidance and it did not, but they think Q4 guidance appears aggressive, and they are skeptical that the two deals will create shareholder value; the firm keeps its $160 stock price target.
  • Oppenheimer believes VMW shares likely will remain range-bound until the company proves it can execute and drive top-line growth synergies, but the firm sees a long-term favorable risk/reward scenario, solid fundamentals and a $1.3B buyback providing support.
  • Maxim maintains its Hold rating, saying quarterly and full-year guidance implies license revenue re-accelerates to 13% Y/Y growth, which represents a heightened level of execution risk, and the proposed deals for PVTL and CBLK likely will replicate the modest value creation Nicira and Airwatch represented.
  • Meanwhile, Needham downgrades PVTL to Hold from Buy, as it believes VMW's takeout price is too low - essentially, VMW is acquiring a high growth software company at a valuation multiple more in-line with a mid-tier growth profile - and does not expect any competing offers.
  • VMW's average Sell Side Rating is Outperform, its Seeking Alpha Authors Rating is Bullish, and its Quant Rating is Neutral.

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