Street Bracing for VMware Earnings (VMW, EMC)

Today is the long-awaited earnings out of virtualization leader VMware Inc. (NYSE: VMW).  This could be a crucial report as this is only the second earnings report out of the company and its first full quarter as a public company.

First Call has estimates pegged at $0.24 EPS and $417.37 in revenues.  Next quarter’s estimates are $0.24 EPS and $436.41M in revenues; if the company offers 2008 targets, those estimates are $1.17 EPS and $2.08B in revenues.

Analysts still have a favorable price target on VMware with an average of $105.88. We are not using options as a prediction tool because of the high VIX and because of a "VMware premium" where many traders use longer-dated options for exposure to the stock rather than paying $80-ish for shares.  The current February $80 straddle would cost traders $11.40 on last look.  Its chart also does not have 6-months of data, so  about all we’d note there is that over the last five trading days shares have traded roughly in a range of $76 to $83 during that time.

Most recently, Lazard Capital Markets initiated coverage with a Buy, and just last week we saw a conservative coverage initiation out of William Blair & Co.

VMware still has a $30.5 Billion market cap, yet only about 14% of its authorized shares are available in the public float.  Shares were down 0.9% at $79.80 at 2:00 PM ahead of the results.  Its trading range since coming public in August has been $51.50 to $125.25. 

Its former parent, EMC Corp. (NYSE: EMC) is set to report its earnings tomorrow.

Jon C. Ogg
January 28, 2008