VMware's Business Transition: Analyst Sees Potential In Broadcom Acquisition For Shareholder Value

BMO Capital Markets analyst Keith Bachman reiterated a Market Perform rating on VMware, Inc. VMW, raising the price target to $160 from $140.

Bachman identified numerous challenges the company must address as it continues its business transition to subscriptions and extends further into the cloud.

The analyst believes VMW's core business will continue to drive its financial model.

VMW reported a Q2 FY24 revenue increase of 2% Y/Y to $3.41 billion, missing the consensus of $3.46 billion. Subscription and SaaS revenue increased 34% Y/Y to $1.26 billion. Subscription and SaaS ARR were up 36% Y/Y to $5.31 billion.

The analyst thinks VMW reported a mixed quarter as billings, total revenues, and FCF missed estimates, while operating margins exceeded the estimate and subscription & SaaS ARR growth accelerated by a healthy amount from last quarter. 

The analyst awaits the closing of Broadcom Inc.'s AVGO acquisition and continues to believe that Broadcom's proposed offer makes sense for VMW shareholders. 

In addition, the analyst continues to believe that VMW could have challenges in capturing new cloud-native workloads. Therefore, a deal with Broadcom could give VMW shareholders a better outcome, the analyst adds.

Bachman raised FY24 EPS estimates to $7.06 from $6.81. 

Also Read: Broadcom Earnings Results Show AI Strength: 6 Analysts Deep Dive Into Print, Outlook

Price Action: VMW shares are trading lower by 2.84% to $163.98 on the last check Friday.