In November, Dell Technologies finally completed a much-anticipated distribution of its majority stake in the cloud software provider VMware to Dell holders, but that hasn’t helped the stock.
While it was expected to boost VMware’s ability to work with new partners – including Dell competitors – the deal so far has done nothing for VMware’s stock, which is off about 9% since the completion of the transaction.
In fact, VMware (ticker: VMW) shares are trading roughly where they were five years ago. Compare that with, say, the 400% return on Microsoft
(MSFT) shares over the same span, and you can imagine that VMware holders are not very happy with the performance.
Monness Crespi Hardt analyst Brian White sees brighter days ahead for VMware shares after “a long, cold, dark winter.” On Thursday, he raised his rating on the stock to Buy from Neutral, setting a price target of $153, a potential return of about 25% from recent levels.
White’s thesis is that VMware has been quietly repositioning the company for an enterprise computing world dominated by the public cloud sector.
“Over the past few years, VMware has invested in organic innovations, completed acquisitions, and inked cloud partnerships, laying the foundation for the next chapter in the company’s story,” he writes. “However, much of this work has gone unappreciated as VMware’s business was negatively impacted by the pandemic.”
White notes that while fallout from the pandemic weighed on financial results, “it drove more organizations to fast-track digital transformation initiatives, creating new, long-term opportunities for the software industry at large, including VMware.”
The company has built a collection of products intended to serve customers operating with a multi-cloud strategy — that includes an application platform called Tanzu, a cloud infrastructure service simply called VMware Cloud, and a remote work platform called Workspace One.
The analyst says that VMware is now working with all of the leading public cloud companies – including Amazon Web Services, Microsoft
‘s Azure, Alphabet
‘s (GOOGL) Google Cloud, Oracle Cloud and Alibaba Cloud, helping customers to avoid lock-in with a single provider.
“Combining this with support for private clouds, the edge, and telecom hosting, VMware has positioned itself well to connect the world’s clouds, fancying itself as the ‘Switzerland’ of the industry,” he writes.
Despite the upgrade, VMware shares on Thursday slipped 0.4%, to $122.44. The S&P 500 fell 0.7%, while the Nasdaq dropped 1.5%.
Write to Eric J. Savitz at [email protected]
