Earnings on Deck: VMware & EMC (VMW, EMC)

After the close of trading today, we will get a look at the earnings report from VMware, Inc. (NYSE: VMW).  The company’s former parent and still-majority shareholder (by far) is EMC Corp. (NYSE: EMC), and it has earnings on deck for tomorrow morning.  We have prepared detailed previews with Thomson Reuters estimates, what to look for in guidance, and added color.  We have also added in the performance of each stock since June 30, and we have included the stock performance since the March 9 close which traders are using as the official date of the end of the market death spiral.

VMware, Inc. (NYSE: VMW) is expected to post $0.20 EPS on $473.95 million in revenues.  Estimates for the December quarter are $0.25 EPS and $523 million in revenues.   VMware made an acquisition of a small private company called SpringSource in September, although that was not expected to contribute any material impact for the time being.  The guidance commentary offered with its last quarter results are as follows:

• CFO Mark Peek said, “Although we remain cautious about the global economic conditions, we are beginning to get a somewhat better visibility into our business.”  The guidance was put in a range of $465 million and $480 for quarterly revenues, and said that it expects 1% to 3% over its 2008 sales of $1.88 billion.

As far as other aspects, the only seen analyst change was a recent upgrade from Jefferies but that was just to Hold from Underperform.  An average target from Wall Street is roughly $34.00 to $35.00 according to our data, so this $45+ share price will require serious analyst adjustments or the stock may come more in-line.  What is interesting is that no real hikes have been made to the VMware estimates over the last quarter. VMware is so far above its 50 and 200-day moving averages that they are hardly worth noting other than saying that this $45 to $45.50 has been resistance in the last 5 sessions.  Based on mid-day options trading, it looks as though options traders are factoring in a move of up to $3.00 to $3.20 in either direction.  VMware stock has rallied 65% since the June 30 close and is up about 125% since the March 9 close.

EMC Corp. (NYSE: EMC) is expected to post $0.21 EPS and $3.45 billion in revenues, and next quarter estimates are $0.29 EPS and $3.97 billion in revenues.  This quarterly report will be the first one of EMC’s reports that reflects its $2.1 cash paid out to purchase Data Domain in July, and it is no secret that many analysts and researchers are slow or forgetful when it comes to updating the proper revenue additions from acquisitions.  One wild card we see here is what exactly EMC plans to do with the huge majority VMware stake, although that is conjecture as of now.  We’d note that the only real guidance was as follows:

• CEO Joe Tucci said, “When IT markets resume to more normal spending rates, we expect EMC will return to generating double-digit revenue growth.”

There have been no real major ratings changes of late and the average analyst target is close to $19.00.  EMC’s chart has used $18 to $18.50 as recent resistance, and its 50-day moving average is $16.62.  A quick review of options looks to be pricing in a move of only up to a range of $0.50 to $0.65 in either direction. EMC’s stock has rallied 35% since the June 30 close and is up 80% since the March 9 close.

JON C. OGG
OCTOBER 21, 2009