VMware 'Clearly Executing Well' Following Solid Q1

VMware, Inc. (NYSE: VMW) has been a standout performer for more than a year, according to BTIG. 

The IT company reported  first-quarter results after the close Thursday.

VMware is "clearly executing well, navigating the initial chapters of the Dell deal nicely, showing promising momentum in new product categories and again modestly taking up forecasts," analyst Edward Parker said in a Friday note. 

Balanced Q1 Performance

The strong first-quarter results validated VMWare's hybrid strategy, which helps customers transition from on-site IT to next generation cloud modalities, Parker said. 

First-quarter license and total billings rose 10 percent and 12 percent, respectively, after adjusting for the vCloud Air sale, Parker said. The analyst attributed the results to balanced performance across VMware's diversifying portfolio.

On the segments, the analyst said networking and storage continued hyper growth momentum and the legacy compute continued to show "respectable mid-single digit growth."

Taken together, the good performance was responsible for the modest revenue and earnings per share outperformance, Parker said. 

Outlook Goes Up

The outlook for fiscal 2018 now calls for $7.61 billion in revenue, up from $7.57 billion, and an EPS of $4.91, up from $4.87, according to BTIG. 

The firm also noted that the operating margin and free cash flow outlook were nudged up.

Full Valuation Keeps Rating At Neutral

The initial feedback on VMware's partnership with Amazon.com, Inc. (NASDAQ: AMZN)'s Amazon Web Services is positive, Parker said. 

"Longer-term, we still see an unresolved underlying tension between maturation in server virtualization and forward growth initiatives where VMware's core strengths seem less relevant. This, and what looks like relatively full valuation, offset our otherwise constructive view."

Given that the stock was running with escalating expectations into earnings, the diminished room for error and a much higher likelihood that shares trade in a tighter range going forward, BTIG maintains a Neutral on VMware. 

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