Brian White: VMware Still Worth $71

Drexel Hamilton issued a company note on VMware, Inc. (NYSE: VMW) after the company delivered stronger than expected 4Q15 earnings performance, but issued a lower 2016 outlook. The firm rates VMware as a Buy and lowered its price target from $73 to $71.

Analyst Brian White wrote, "We believe VMware's valuation is extremely attractive on a standalone basis...VMware is the clear #1 player in the virtualization software market and the company is now expanding its reach in cloud-related technologies, software defined networking, software-defined storage and other areas."

Drexel Hamilton reported two reasons why they see strength in shares of VMware:

1. Profitability and cash flow generation

In the fourth quarter, VMware reported stronger-than-expected $1.26 EPS and $488 million in operating cash flow. Analysts believe that due to the company's strong customer relationships, operational efficiency and market share, this trend of outperforming profitability and cash flow estimates could continue, particularly as the company has reported an acceleration in net bookings.

2. New growth areas

Analysts wrote that VMware expects new growth areas including vCloud Air and AirWatch to outpace the decline in legacy computer products in 2016. With the growing importance of cloud computing, Drexel Hamilton likes VMware's mobile cloud platform and believes that they can increase the capabilities of that business segment in the future.

The stock recently traded at $44.93, up 1 percent on the day after a big selloff on Wednesday.