Broadcom Deal Makes Sense For Vmware Shareholders, Analysts Say

Mizuho analyst Gregg Moskowitz reaffirmed a Neutral on Vmware, Inc VMW with a $135 price target.

VMW reported its partial 3Q results after the close, which were generally below expectations. Total revenue only grew 1% Y/Y, which came in well below the Street's 5% growth forecast. 

Total billings growth of 4% Y/Y also missed Street estimates of +9% Y/Y, and non-GAAP operating margins of 26.7% were roughly 30bps below consensus. 

Much more positively, License, Subscription, and SaaS billings grew by 20% Y/Y, well above his estimates and reflecting modest acceleration.

Broadcom Inc AVGO announced that it is acquiring VMW for ~$61 billion in late May. AVGO and VMW have targeted the acquisition to close in AVGO's FY23.

KeyBanc analyst Thomas Blakey reiterated the Sector Weight rating of Vmware shares pending the potential sale of VMWare to Broadcom. 

VMWare's top-line growth in 3Q missed consensus and his growth forecasts as the Company missed on both License and Subscription and SaaS (S&S) revenue lines. Non-GAAP EPS underperformed his and Street estimates.

BMO Capital analyst Keith Bachman maintained a Market Perform rating on Vmware and a price target of $142.50. Broadcom's proposed offer makes sense for VMW shareholders, Bachman writes. 

VMW has a long journey in continuing its business model transition to subscription and SaaS revenues, particularly as the macro pressures "big ticket" items. 

In addition, VMW could have challenges in capturing new cloud-native workloads. Therefore, a deal with Broadcom could give VMW shareholders a better outcome.

Raymond James analyst Simon Leopold maintained a Market Perform rating on VMware following 3Q's worse-than-expected earnings report. 

Given the pending acquisition by Broadcom, likely to close in October 2023, the Company did not host a conference call, nor did it offer a forecast. 

Price Action: VMW shares traded higher by 0.5% at $118.98 on the last check Wednesday.