Is VMware’s Stock Undervalued?

by Trefis Team
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Yes, as per Trefis estimates, VMware’s (NYSE:VMW) stock has a fair value of $163, which is roughly 10% higher than the current market price. VMware makes money from the sale of software and services for data center management, hybrid cloud computing, remote access, and desktop virtualization. The company’s products are offered as hardware, software, and services. Its customers span across sectors that aim to transform their businesses digitally. It competes with Microsoft, Nutanix, Cisco, among others.

In this note, we discuss our stock price valuation for VMware. You can look at our interactive dashboard analysis ‘VMware’s valuation: Expensive or Cheap? for more details, and also modify our forecasts for the company’s key metrics to understand how changes impact the company’s stock price.

#1. Estimating VMware’s Revenues:

  • Total Revenue increased from $8 billion in 2017 to $9 billion in 2019 and is expected to increase by 12.2% to $10.1 Billion in 2020.
  • A separate interactive dashboard analysis ‘VMware’s Revenues – How Does VMware Make Money?’, details our forecast for FY 2020 and 2021.
 #2. Deriving VMware’s Net Income:
  • Net Income grew from $1.2 billion in 2017 to $2.4 billion in 2019, and we expect it to be around $2.3 billion in 2020
  • This decline will likely be because of lower margins offset by higher revenues.

#3. Determining VMware’s EPS:

  • EPS went up from $2.88 in 2017 to $5.85 in 2019, and we expect it to be around $5.61 in 2020
  • The expected increase in EPS for 2019 can be attributed to higher Net Income and lower Shares outstanding.

#4. Estimating VMware’s Share Price:

Our price estimate of $163 for VMware’s stock is based on our Detailed Valuation Model for VMWare and implies a 29.1x P/E Multiple on expected 2020 EPS of $5.61. Our interactive dashboard captures how VMware compares with its competitors Microsoft and Cisco in terms of Revenue and P/E multiple.

See all Trefis Price Estimates and Download Trefis Data here

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