[Update 01/11/2022] VMware’s Stock
At the current price near $120, VMware’s stock (NYSE: VMW) has more than 20% upward potential compared to Trefis’ VMware’s valuation of $153. In its latest earnings for Q3 FY 2022 (ended October 2021), the company beat consensus estimates for both revenue and valuation. Revenue for the third quarter was $3.19 billion, an increase of 11% y-o-y. Subscription and SaaS segment drove the growth with an revenue increase of 21% y-o-y. Remaining Performance Obligation totaled at $11.12 billion, up 9% y-o-y.
Overall, we expect VMware’s revenues to rise by 9.4% to $12.9 billion for FY 2022 (ends in January 2022) driven by growth in Subscription and SaaS segment, while net income is likely to be $2.4 billion, increasing its EPS figure to $5.75 in FY 2022. In FY 2023 we expect revenue to rise to $13.7 billion and net income to increase to $13.7 billion. This would take EPS to $6.42 for FY 2023, which coupled with the P/E multiple of 23.8x will lead to VMware’s valuation around $153, which is over 20% higher than the current market price.
Below you’ll find our previous coverage of VMware’s stock where you can track our view over time.
[Update 6/18/2021] VMware’s Stock To See Moderate Growth?
VMware (NYSE: VMW), a cloud computing and virtualization technology company, has seen its stock gain 14% – moving from about $138 to $157 since the end of FY 2021 (ended January 2021). VMware’s revenues and earnings benefited from the pandemic as lockdowns promoted digitization of organizations with a push for remote working. The momentum continued in Q1 2022 (ended April 2022) as the company recorded revenue growth of 9% y-o-y to $ 3 billion. Revenue from Subscription and SaaS segment saw the highest growth by 29% to $741 million. Q1 2022 (ended April 2022) earnings went up to $1.01, compared to $0.92 in the same quarter of the previous year.
We expect VMware’s revenues to rise by 8.3% to $12.7 billion for FY 2022 (ends in January 2022). Further, its net income is likely to be $2.1 billion, increasing its EPS figure to $5.03 in FY 2022, which coupled with the P/E multiple of 34.7x will lead to VMware’s valuation around $174, which is 11% higher than the current market price.
[Updated 4/8/2021] VMware’s Stock To Cross $170?
At the current price of around $152 per share, we believe VMware’s stock (NYSE: VMW) has the potential for good growth in the near term. VMW stock has been flat since the end of FY 2019 (ended January 2019) compared to the S&P500 which has increased by 49% in the same period. Revenue rose in FY 2021 (ended January 2021) as the Covid-19 pandemic pushed individuals and organizations toward digitalization and cloud offerings. The revenue growth was led by the Subscription and SaaS segment which grew by nearly 38% compared to the previous year.
On July 15th, 2020 Dell filed a form 13D/A with the SEC disclosing that they were exploring a spin-off of their 81 percent equity ownership in VMware. The company has over the months reiterated that there won’t be any changes in the business partnership between the companies. In February 2021, the VMware interim CEO Zane Rowe said the company is “making progress” on its potential spin-off from Dell Technologies and believes it could be value-enhancing to VMware and its stockholders. The spin-off is not expected before September 2021 as Dell is seeking to qualify it as tax-free for income tax purposes. Since the details on the potential spin-off are still under evaluation, how it will impact VMware is yet to be known.
VMware’s revenue rose from $9.6 billion in FY2019 (ended January 2019) to $11.8 billion in FY2021 (ended January 2021). Net income margin increased from 16.5% in FY2019 to 17.5% in FY2021. On a per share basis, earnings went up from $3.99 to $4.80 while the company saw a 1.8% fall in shares outstanding.
During the same period, the P/E multiple fell from 37.5x to around 28.1x. The P/E improved slightly in FY2022 and is currently around 31.1x.
Where Is The Stock Headed?
The global spread of coronavirus led to lockdown in various cities across the globe, which affected industrial and economic activity. This, in turn, promoted digitization of organizations with a push for remote working. VMware saw revenues increase by 9% to $11.8 billion for FY 2021 while GAAP operating income rose to $2.4 billion, up by 66% y-o-y. Earnings fell to $4.90 compared to $15.37 in the previous year. The earnings were very high in FY 2020 (ended January 2020) as a discrete tax benefit of $4.9 billion was recognized with a deferred tax asset due to an intra-group transfer of some intellectual property rights to their Irish subsidiary.
The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again. In FY 2022 we expect VMW revenues to rise to $12.7 billion, up 8.3% y-o-y. Further, its net income is likely to rise to $2.1 billion, increasing its EPS figure to $5.03, which coupled with the P/E multiple of 34.1x will lead to VMware’s valuation around $172 per share, up by 13% from the current market price.
While VMW stock is likely to move higher in the near term, there are other stocks that look like a Better Bet Than VMW Stock. Also, VMware Peer Comparisons summarizes how the company fares against peers on metrics that matter.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.
|S&P 500 Return||-2%||-2%||109%|
|Trefis MS Portfolio Return||-6%||-6%||271%|
 Month-to-date and year-to-date as of 1/10/2022
 Cumulative total returns since the end of 2016