As you might know, VMware, Inc. (NYSE:VMW) just kicked off its latest first-quarter results with some very strong numbers. It was overall a positive result, with revenues beating expectations by 4.4% to hit US$2.7b. VMware also reported a statutory profit of US$0.92, which was an impressive 112% above what the analysts had forecast. This is an important time for investors, as they can track a company’s performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. Readers will be glad to know we’ve aggregated the latest statutory forecasts to see whether the analysts have changed their mind on VMware after the latest results.
Check out our latest analysis for VMware
NYSE:VMW Past and Future Earnings June 1st 2020
Taking into account the latest results, the most recent consensus for VMware from 26 analysts is for revenues of US$11.5b in 2021 which, if met, would be a satisfactory 3.8% increase on its sales over the past 12 months. Statutory earnings per share are expected to crater 80% to US$3.02 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$11.4b and earnings per share (EPS) of US$3.00 in 2021. So it’s pretty clear that, although the analysts have updated their estimates, there’s been no major change in expectations for the business following the latest results.
With the analysts reconfirming their revenue and earnings forecasts, it’s surprising to see that the price target rose 8.0% to US$167. It looks as though they previously had some doubts over whether the business would live up to their expectations. The consensus price target is just an average of individual analyst targets, so – it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values VMware at US$202 per share, while the most bearish prices it at US$100.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. It’s pretty clear that there is an expectation that VMware’s revenue growth will slow down substantially, with revenues next year expected to grow 3.8%, compared to a historical growth rate of 12% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 12% next year. So it’s pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than VMware.
The Bottom Line
The most important thing to take away is that there’s been no major change in sentiment, with the analysts reconfirming that the business is performing in line with their previous earnings per share estimates. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
With that in mind, we wouldn’t be too quick to come to a conclusion on VMware. Long-term earnings power is much more important than next year’s profits. At Simply Wall St, we have a full range of analyst estimates for VMware going out to 2025, and you can see them free on our platform here..
Don’t forget that there may still be risks. For instance, we’ve identified 4 warning signs for VMware (1 is a bit unpleasant) you should be aware of.
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