Cowen Survey Paints A Bullish Picture For VMware

VMware, Inc. VMW's stock soared higher by more than 50 percent in 2017, but there's room left for growth, according to a proprietary Cowen survey.  

The Analyst

Cowen's Gregg Moskowitz upgraded VMware's stock rating from Market Perform to Outperform with a price target lifted from $130 to $150.

The Thesis

VMware's management has guided its business to experience a total compute bookings compounded annual growth rate in the low single digits over the next few years, Moskowitz said in a Thursday note. But the results of Cowen's proprietary survey suggest this guidance is conservative, he said. (See the analysts's track record here.) 

The results include: 

• Thirty-two percent of IT decision makers who responded to the survey already use VMware's vSphere "a lot," which represents an increase from 30 percent in a similar survey conducted last May, the analyst said.
• A "much stronger" 39 percent of respondents said they plan on using vSphere "a lot" over the next 12 to 18 months, which represents the largest positive variance dating back to February 2016, Moskowitz said. 
• The percentage of respondents who don't use vSphere today is likely to fall from 19 percent to 14 percent over the same time period, he said. 

"Altogether, the data provide us with increased confidence in VMW's core business," Moskowitz said. "We also note that this survey comprised many large decision makers, as 33 percent of respondents represented corporations with annual IT budgets of $100 million-$500 million, and 30 percent of respondents represented companies with annual IT budgets in excess of $500 million." 

Bottom line, the encouraging survey results suggest that VMware's stock multiple at current levels is "attractive" at 15x 2018E EV/FCF and 14x 2019E EV/FCF, which is already a 15-percent discount to the peer group, according to Cowen. 

Price Action

Shares of VMware hit a new 52-week high of $133.21 on Thursday and was trading higher by more than 2 percent on the day.

Related Links:

Amazon And VMware: A Partnership Made In The Cloud

BMO Capital Upgrades VMware 'At Long Last,' Says Shares Can Move Higher