24/7 Wall St.

On Wednesday, October 24, we’ll get our first look at the real VMware (NYSE:VMW) earnings.  "Consensus" estimates are still varied from source to source, but we have First Call on last look as showing $0.17 EPS on $332.5 Million.  We have another source at $331 million, but the truth is that this doesn’t matter.  The highest estimate we have seen is $352.1 million and after the massive performance any logic would dictate that this has to blow away all of the high numbers and then some.  If not, then it’s just another overpriced hi-flyer. 

WARNING from 24/7 Wall St.: logic can still fall victim to the VMware conundrum we have explained.  We gave a scenario of what current $100+ stock prices actually look like on the valuation front.  That VMware stock conundrum is going to exist for some time until the float catches up.

If VMware offers guidance, the street is at $0.19 EPS & $382.8 million for next quarter.  Watch the guidance closely, because that is a part of what caused the hit to Citrix Systems (NASDAQ:CTXS) shortly before completing the XenSource purchase to enter its virtualization phase.

Traders are still using stock options as a stealth trade to playVMware.  It traded 4.4 million shares of stock today, but the NOV putshad over 5,000 contracts of the six closest active strike prices andthe NOV calls traded over 10,000 contracts of the seven closest strikes.

On Thursday, October 25, we’ll see how this impacts EMC Corp. (NYSE:EMC) and we’ll follow up with a more combined and interfaced preview for EMC separately tomorrow.  Below are the other key issues you’ll want to know regarding VMware:

• EMC & VMware are part of the window dressing stock plays;
• Analysts have to play catch-up to original price targets;

Jon C. Ogg
October 23, 2007

Jon Ogg is the editor of the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers.  We just released our first part of two of our "Small Cap Internet Watch List" for subscribers to see which stocks we think could be acquired (and by which suitors) under the right circumstances in the space. This year alone we have discussed how aQuantive, 24/7 Real Media, and Web.com were acquired off this list;and you can see samples of this.