VMware (VMW) Stock Price Target Lowered At MKM Partners

NEW YORK (TheStreet) -- MKM Partners lowered its price target on VMware (VMW - Get Report) stock to $75 from $90 on Wednesday. The firm maintained its "buy" rating on the stock.

The Palo Alto, CA-based software and cloud computing company is rumored to be restructuring its Virtustream cloud platform with its parent company, EMC Corp. (EMC), MKM said. Virustream is a concern to investors due to its operating losses and capital requirements, the firm said.

EMC could keep a majority stake in Virtustream, with VMware holding a minority interest, Reuters reported last week.
This would lower 2016 revenue by about $400 million, but should improve operating margins and cash flow, MKM said.

"The company likely faces issues of economics and timing: customers are hesitating to make cloud architecture commitments while evaluating their options, and VMware's own cloud likely presents lower margins revenues than its license business," the firm added. "Still, with a strategic asset of this sort and the overwhelmingly negative sentiment on VMware shares, we are maintaining our Buy rating."

Shares of VMware closed down 0.02% to $62.18 on Tuesday.

Separately, TheStreet Ratings team rates VMWARE INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate VMWARE INC (VMW) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and increase in net income. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

• The revenue growth came in higher than the industry average of 15.8%. Since the same quarter one year prior, revenues rose by 10.2%. Growth in the company's revenue appears to have helped boost the earnings per share.

• VMW's debt-to-equity ratio is very low at 0.20 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, VMW has a quick ratio of 2.20, which demonstrates the ability of the company to cover short-term liquidity needs.

• The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Software industry and the overall market on the basis of return on equity, VMWARE INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.

• VMW's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 31.03%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.

• Net operating cash flow has decreased to $412.00 million or 32.01% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.