VMware Surges After Beat And Raise Quarter

VMware, Inc. (NYSE: VMW) was among the leading gainers on the New York Stock Exchange Monday morning after the company released strong financial results for its fiscal second quarter. In early trading, the shares had risen more than 9 percent to $68.40 on heavy volume. This compares to a 52-week range for VMware of $43.25–$93.43. A look at the chart of the virtualization and cloud computing company shows a very aggressive breakout pattern that has sent the stock to year-to-date highs.

Traders had been acquiring VMware ahead of its Q2 earnings report, and in light of the strong results, the recent move in the stock would appear justified. The company reported earnings of $414 million, or $0.97 per share, compared to $369 million, or $0.93 per share, in the year-ago quarter. This came in ahead of Wall Street consensus estimates of $0.95 per share.

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Revenue in Q2 climbed to $1.69 billion versus $1.59 billion last year. This also came in above the Street's consensus estimates of $1.68 billion.

Analysts' Take

On Tuesday, a number of brokerage houses raised their price target for the stock after the upbeat quarter. Analysts at Maxim Group lifted their 52-week target on the stock from $68.00 to $73.00, while Raymond James boosted its target to $109.00 from $98.00, representing significant upside from current levels.

Even more aggressive was the Royal Bank of Canada, which lifted its price target from $110.00 to $120.00. Analysts at BMO Capital Markets also have a constructive outlook on the shares after the company's fiscal Q2 results. They raised their 2016 EPS estimate from $4.17 to $4.30 and the firm's 2017 EPS target went from $4.44 to $4.60. BMO's price target on the stock was also lifted from $55 to $70.

The analysts, however, only remain moderately bullish on VMware shares, which they maintained at Market Perform, writing that "we choose to stay on the sidelines as we are not convinced that positive top-line growth is sustainable."

They also voiced concerns about a potential conflict of interest between VMware's future parent company Dell and VMware shareholders. BMO is bullish in the near term, however, suggesting that a relatively high short-interest along with the company's better-than-expected Q2 will drive the stock higher in the near term.

Looking ahead, company executives provided guidance of $1.7 billion to $1.8 billion in sales for the company's third-quarter, versus the current analysts' consensus of $1.72 billion. For the full year, VMW sees sales between $6.95 billion and $7.05 billion and EPS of $4.27 to $4.33. Currently, the Street is estimating that VMware will report sales of $6.90 billion on earnings per share of $4.15.

At time of writing, VMware shares were up 9.40 percent on the day, trading at $68.45.

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