EMC & VMware, An Earnings Differential (EMC, VMW)

April 20, 2008 by Douglas A. McIntyre

We already gave a preview for the stocks we consider the most go-to in tech-land this coming week, but there are other major and key stocks that are grouped in other manners.  Two such companies are VMware, Inc. (NYSE: VMW) and EMC Corp. (NYSE: EMC).  EMC saw a surge of interest in 2007 as it owned roughly 86% of the post-IPO Vmware, but that was then.  EMC sits only a bit more than 10% above its 52-week lows and VMware has lost more than half of its post-IPO hype price.

VMware, Inc. (NYSE: VMW) is set to report earnings first of the two companies.  First Call has estimates for the king of virtualization set at $0.22 EPS on $422.3 million in revenues.  Estimates for next quarter are $0.25 EPS on $463.5 million in revenues and fiscal Dec-2008 estimates are $1.08 EPS on $1.99 Billion in revenues. The post-IPO trading range is $41.41 to $125.25.  Shares closed up 6% Friday at $58.47 and the average analyst target on this one has come down to just over $64.00 on last look.  In the current climate, new companies with huge market caps, way above-market multiples, limited operating history, and that have well over half the stock tied up by a parent that could sell out over the next year or two, it is probably safe to assume that the company has to beat estimates to keep everyone pleased. 

Wednesday we’ll get to see earnings out of EMC Corporation (NYSE: EMC). The estimates for the information infrastructure technologies developer from First Call are $0.16 EPS on $3.45 billion in revenues.  Next quarter estimates are $0.18 EPS on $3.57 billion in revenues. Estimates for fiscal Dec-2008 are $0.79 EPS on $14.96 billion in revenues.  Analysts have an average price target north of $20.00, and EMC Corporation’s 52-week trading range is $14.01 to $25.47.

If you will recall, we noted value manager Whitney Tilson’s call for the "EMC-stub" where he laid out the scenario that you were essentially buying EMC for under $5.00.  Those numbers will have changed by now, but it is interesting how this is and was available.

Perhaps we’ll get to hear EMC discuss its intentions of how long it plans to hold the stock.  The company recently said it wants to hold that indefinitely, but we’ve heard that song and seen that change before in other similar situations.

Recently, we covered some major issues coming up in virtualization.

Jon C. Ogg
April 20, 2008

Jon Ogg is a producer and editor of the Special Situation newsletter and the "10 Stocks Under $10" weekly newsletter for 247Wallst.com.