Dell's crown jewel blinks a little brighter
VMware (NYSE: VMW) released its results about 10 days ago. It was a good pace, basically in all the measures that operate. In particular, reserves growth has accelerated to 13% for the second consecutive quarter. Licensing reserves experienced a significant acceleration in the quarter, reaching a growth of 14%, compared with a 9% growth in the previous quarter. BPA of $ 1.43 $ 0.04 A was beaten. Operating margins showed a marked improvement. The company provided what appears to be a conservative orientation, especially for some of its older products.
Many investors want to invest in the cloud, but most find alternative space to be expensive and risky. In a way, VMW is a rare animal that has a significant set of solutions that are in the cloud, a relationship with AWS (NASDAQ: AMZN) that will start contributing to revenue this fiscal year as well as some offers in Hyper- convergence.
The first time I wrote about VMware before the transaction with Dell in it would be EMC swallowing in April. The shares have appreciated more than 50% since then, while the IGV is about 16%. An obvious question is if it is too late to get on this train? I will explore this issue in this article.
The other issue to consider is the competitive position of the company in its different markets. This is a complex task and requires a little study to be properly valued and appreciated.
Although VMW shares have increased substantially, there is still a clue because visible growth has also increased significantly. In April, the main measure of growth in license stocks increased by 2%. It is currently growing at 14%. In April, the company raised its revenue growth rate from 3% to 5%, and slightly increased its earnings per share. Revenue growth has reached nearly 10%, gaining faster profits.
Somehow, as I explain below, VMW shares are now more of a case than they were in April because the growth rate is much higher in terms of revenues and margins. The CEO of the company, Pat Gelsinger proclaimed that "our strategy is the hybrid cloud." Of course, the company does not get all or even a preponderance of revenue from the hybrid cloud, but the momentum in this business is undeniable and can show an acceleration of the step function that partnerships with AWS and IBM (NYSE: IBM) Start generating income. VMware is far from being evaluated as a cloud name despite the progress made by the company in that direction. Lots of time to get on the train.
The reason why behind the
One of the things I like about the convenience of VMware is that while stocks went up, it has not yet become a favorite non-ally analysts. The average first call rating is 2.4, blocked from buy and hold, and has not changed substantially in some time, although Wells Fargo increased its rating shortly before the release of results last month.
A few days ago, a writer for Street.com, has produced an article with the sensational title "pay more for the virtual madness of VMware." Editors of the SA could not afford this type of title. While the title was sensational, notes the author had a glow of reality. The company's revenue growth has not reached double digits and less than 10% of its business is in the cloud. Those are the facts.
If I believed that the company's sales growth would be less than 6 percent. 100 - the current consensus estimate for the first call - or that its EPS would not exceed current forecasts of $ 4.87 for what will be fiscal year 2018 (ending 1/31/18), then it would be much more difficult to Recommend actions. But I have many reasons to believe that the consensus will be overcome, as it is the case since I first published this name. (Investors should note that VMware now report their results on Dell's earnings time, which means that the first quarter will be held from 02.01 to 04.30. The month of January will be considered a chunk period and will be reported by Separate but since it does not include the closing period, it is unlikely that the results are not representative of the pace of the company's operations.)
Therefore, it is not surprising that the average price target of the action is only one
If revenues have not crossed a two-digit growth threshold, the company was able to increase its operating cash flow by more than 20% and increase free cash flow by 43%. Much of this increase in cash flow is a product of higher deferred revenue balances that suggest that demand for VMW solutions is increasing faster than total revenues. The company expects earnings per share growth to be around 11% next year, with a free cash flow growth of about 9%, it seems likely that the company has a significant opportunity due to strong momentum Deferred revenues to its new solutions to overcome this projection.
It would be much easier for analysts if VMware chose to leave all its many solutions and offer its contribution to revenue and growth rates. It would be easier, but it would also be a fairy tale. At this point, I think it's fair to see that much of the company's reserves come from fast-growing business segments. Unless this trend changes significantly, reserves growth will again be in double digits and that strength should lead to revenue growth at least equal to that observed in 2016. The CFO said: 2018. Our Portfolio expanded products, as well as our private, hybrid and public cloud strategy, resonate well with our customers ... "On a qualitative basis, continued dynamic growth should mean reserves in the mid-to-late teenage years or more I create growth reserves at this level, it sets a stage in which the company will be able to exceed expectations during the year, and do so in a way that will potentially change company valuation parameters.
Anchor Compute-boat or simply a source of income
In recent years, the business component, which VMware calls the calculation has declined steadily. The calculation is the main factor of compression of evaluation metrics for VMware. It is interesting to note, for example, that Nutanix with global revenues are approximately 10% of VMW has a company value of $ 4.1 million, while VMW has a company value of about $ 30 billion. The reason is that the hyper-VMW growth areas are offset against the equity company that is flat to decline and is likely to continue to squeeze in the foreseeable future. The happiest part of this is that the narrowing of VMW starts ... continue to decline as a percentage of total revenues and reserves and less than half of reserves, allows the new strength of company solutions to show through.
It's part of VMW has its foundation in that the company emerged in the world again at the turn of the century. It is all the virtualized classic products that run on Windows, Linux and Mac, which is called hypervisors for different servers. During the last conference call, management said it hoped that the calculation would lead to a decrease in license reserves mid-individual digits, but would be able to maintain total revenues.
While it is always a lot more fun to talk about new products such as sexy and VxRail NSX, the fact is that much of the company's good results last year due to an excess of achievement in its segment that was reduced At a slower rate than originally planned summer. Even if the calculation seems to be a product near the sunset, it turned out to be a foundation or a springboard for the rest of the VMW product range.
The periodic triggering factors for this company will be how to calculate declines; Full double-digit growth will be difficult to achieve if the calculation of reserves indicates a decrease of more than half a digit. CEO Gelsinger thoughts on the topic as expressed in a response when the call has been as follows:
In other words, we believe that we have taken these challenges in the fourth quarter. And with the overall good results in the quarter, which is generally seen in mid-teen licensing ... also for the office and the end user have a very robust pipeline ... We are very excited, however, about the vision of the UNO work area, where there is no office or mobility or identity. This is the complete solution and is a very different strategy to everyone in the industry. And we really started to see the adoption of this in the fourth quarter and those that are great deals, more strategic.
Many investors are probably tired to exhaustion upon learning of the revolution of the clouds. They do not want to hear about transitions and changes in income recognition and another. For these investors, VMware will not be the easiest name to keep in mind. As I have tried to point out, while a part of your future regarding solutions for use in place in different ways or as part of a storage device, it has also developed specific solutions and celles- cloud these are also worthy Of being discussed in some level detail of, at least, by identifying what they are.
VMW offers some AWS solutions are expected to have a significant impact on growth, but not particularly in the coming year. The products will generally be available by the middle of next year and the sales cycles are such that it is likely to be prudent not to overestimate the adoption of a new product. The AWS bid is expected to lead to sustained revenue growth, as it means users are buying the full range of VMW offerings, while most existing customers are still the users of vSphere, the desktop solutions company.
A crucial component of the VMW cloud strategy is what it calls Cross-Cloud. Cruz Cloud is an architecture that allows users to manage AWS, Microsoft Azure (NASDAQ: MSFT) and Google (NASDAQ: GOOG) using VMware tools. It is much more complicated than that, but the details are not very important in evaluating the prospects of VMW. This is a new offer of the company that is being introduced. The above link is one of the most enthusiastic reviews of a product I've seen lately, and some readers may find it interesting to see how the industry experts rate some of the company's new products is the introduction.
Of course, like any new offer that is in a space that did not exist until now, the growth trajectory is difficult to determine, but the initial signals, such as the address described during the conference call, were favorable. There are several competitive strategies that are designed to achieve cross-connect functionality.
The AWS service is likely to use initial VMW clients defined data center. Given the potential contribution of SDDC revenues, it appears that this strategy has the potential to revive the business sector.
Management has suggested that the strong quarter reached in the fourth quarter was a product of its customers to understand and appreciate the hybrid cloud strategy and to buy more VMW applications because of this strategy. I have no way to measure this claim, of course, but this seems plausible, and if true, then it creates a better year in 2018 than the company was careful to predict.
There is much controversy over the utility of hybrid cloud solutions versus the public cloud. I'm sure the answer depends on many factors, but in general, that's probably enough to tie the two in the firmament. Not all companies can issue their data centers for some time in the near future, but all companies looking to make reality part of the cloud economy.
evaluation
There is always something more that could be written in relation to a company as complex as VMW. Of course, some readers have wanted to see less. I hope the article is a balance between more than one player has to determine buy / sell / retention in their mind and something more detailed than necessary.
When I started writing about VMW values on this site, they were not cheaper. They are now cheap because estimates of growth rates are much higher. VMW shares closed at $ 89.50 yesterday, and the company has a series of fully diluted shares of 416.5 million, as shown in the last quarter's release. The number of shares planned for the current year is 409 million, based on the repurchase of shares, and I have used it in the calculation of the value of the company.
The share repurchase has reduced outstanding shares by approximately 2% per year during the most recent period. At 409 million, the company has a market capitalization of $ 36.6 billion. The company has a net cash of $ 6.5 billion, so the value of the company now stands at $ 30.1 million. The company's revenue forecast is $ 7.6 billion, giving an EV / S of approximately 3.95X. Me appell
