Is A Beat In The Cards For VMware (VMW) In Q3 Earnings?

By Zacks Investment ResearchStock MarketsNov 26, 2017 08:29PM ET

www.investing.com/analysis/is-a-beat-in-the-cards-for-vmware-vmw-in-q3-earnings-200268468

Is A Beat In The Cards For VMware (VMW) In Q3 Earnings?

By Zacks Investment Research | Nov 26, 2017 08:29PM ET

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VMware Inc (NYSE:VMW) is set to release fiscal third-quarter 2018 results on Nov 30.

In the last quarter, VMware’s non-GAAP earnings of $1.19 per share beat the Zacks Consensus Estimate of $1.15, increasing 72.5% from the year-ago quarter. Revenues of $1.9 billion also topped the consensus mark of $1.89 billion and increased 12.2% on a year-over-year basis.

Year to date, VMware has outperformed the industry. The stock has returned 57.8% compared with the industry’s gain of 36.7%.

Vmware, Inc. Price and EPS Surprise

Vmware, Inc. Price and EPS Surprise | Vmware, Inc. Quote

In third-quarter fiscal 2018, revenues are expected to be in the range of $1.930-$1.980 billion (midpoint of $1.955 billion). License revenues are expected to be within the $755-$785 million range (midpoint of $770 million). Non-GAAP earnings are expected to be in the range of $1.25-$1.28 per share (midpoint $1.265).

Earnings Whispers

Our proven model shows that VMware is likely to beat earnings estimates because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

The combination of VMware’s Zacks Rank #3 and Earnings ESP of +0.79% makes us very confident in looking for an earnings beat this quarter. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

We don’t recommend Sell-rated stocks (Zacks Rank #4 or #5) going into the earnings announcement.

Factors at Play

VMware’s strong product portfolio that includes NSX, AirWatch, vSphere and vSAN is the primary catalyst. The company continues to benefit from its strength in the virtualization and hybrid cloud market.

Moreover, strategic partnerships with the likes of Intel (NASDAQ:INTC) , Samsung (KS:005930), Fujitsu, Pivotal, Google (NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT) will bolster its presence in hybrid cloud computing as well as the fast growing Internet of Things (IoT) market. VMWare recently announced a partnership with SAP to speed up enterprise IoT implementations.Moreover, frequent contract wins and robust international sales are expected to drive results.

Further, acquisitions such as that of Wavefront will boost VMware’s cross-cloud service providing abilities. Additionally, the planned divestiture of the vCloud Air will aid the company’s focus on the core business.

However, sluggish IT spending as well as intensifying competition remain the major headwinds in the near term.

Stocks to Consider

Here are some stocks you may want to consider as our model shows that theyhave the right combination of elements to post an earnings beat:

Micron Technology Inc (NASDAQ:MU) has an Earnings ESP of +1.60% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Autodesk Inc. (NASDAQ:ADSK) has an Earnings ESP of +3.23% and a Zacks Rank #3.

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With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

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Is A Beat In The Cards For VMware (VMW) In Q3 Earnings?

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