The Dell-EMC Deal Still An Overhang For VMware

• Shares of VMware, Inc. (NYSE: VMW) have declined 43.29 percent over the last six months, reaching a low of $48.79 on January 25.
• Daniel H. Ives of FBR & Co. has maintained a Market Perform rating on the company, while lowering the price target from $73 to $59.
• Ives mentioned the announcement of the deal between Dell Inc. and EMC Corporation (NYSE: EMC) has been a “black cloud” over VMware’s stock.

Analyst Daniel Ives explained that VMware had declined about 40 percent since the announcement of the Dell-EMC deal, given investor fears regarding a “a tracking stock overhang and fundamental disruption from the deal.”

However, Ives also mentioned the robust December quarter results were “a small step in a positive direction,” with VMware beating the consensus forecasts across the board, driven by seasonally strong deal flow into the yearend.

According to the FBR report, “While guidance for 2016 from a headline perspective looks very soft, it is mostly Virtustream-related as this joint initiative was previously scratched and taken off VMware's books.”

Related Link: Report: VMWare To Oversee A Big Headcount Reduction

“Ultimately, while VMware has some headwinds ahead, we believe investors should breathe a sigh of relief after last night's quarter/guidance,” Ives stated.

The 1Q16 total revenue and EPS estimates have been reduced to reflect the loss of the Virtustream contribution, along with bookings timing and company-specific headwinds.

For FY16, the total revenue estimate has been lowered, while the EPS estimate has been raised to reflect a ramp in profitability and margins due to the model mix shift.

Image Credit: mage Credit: By Raysonho @ Open Grid Scheduler / Grid Engine (Own work) [CC0], via Wikimedia Commons