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VMware (VMW) to Report Q3 Earnings: What's in the Cards?

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VMware, Inc. is set to report third-quarter 2016 results on Oct 26. Last quarter, the company’s earnings matched the Zacks Consensus Estimate. It has delivered average negative earnings surprises of 0.60% in the past four quarters.

Let’s see how things are shaping up for this announcement.

Factors to Consider

VMware remains one of the leading companies in the virtualization and cloud computing market. This will be the first quarterly result after its parent-company EMC Corporation was acquired by Dell Inc. for $67 billion in September.

The new company called Dell Technologies now holds approximately 80% of VMware shares, which were earlier held by its parent EMC. The remaining 20% of the shares are held by shareholders and continue to trade. Dell created a tracking stock from 53% of the value of total VMware shares. Following the acquisition, Michael S. Dell took over the role of Chairman of VMware’s board of directors, replacing Joseph M. Tucci.

VMware continues to benefit from its strength in the virtualization and cloud computing market. The company’s innovative product pipeline, strategic partnerships, continuous contract wins and robust international sales are expected to drive overall results. Additionally, the company continues to make strategic acquisitions and partnerships, which is a positive. Despite these, the company has been seeing weakness in its core business for a while. In order to overcome it, VMware has increased its focus on developing cloud services like vCloud Air and vCloud Air Network.

For third quarter 2016, the company expects the midpoint of its revenue range to be $1.763 billion. Non-GAAP earnings per share are expected to be $1.10 at the midpoint.

Earnings Whispers

Our proven model does not conclusively show that VMware is likely to beat earnings this quarter. This is because 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. That is not the case here as you will see below.

Zacks ESP: VMware has an Earnings ESP of 0.00% as both the Most Accurate and the Zacks Consensus Estimate stand at 69 cents.

Zacks Rank: VMware currently has a Zacks Rank #3. Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

VMWARE INC-A Price, Consensus and EPS Surprise

VMWARE INC-A Price, Consensus and EPS Surprise | VMWARE INC-A Quote

Stock to Consider

Here are a few stocks that, as per our model, have the right combination of the two key components:

NN Inc. has an Earnings ESP of +4.35% and a Zacks Rank #1.

Amazon.com Inc. (AMZN - Free Report) has an Earnings ESP of +6.98% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Entergy Corporation (ETR - Free Report) has an Earnings ESP of +8.07% and a Zacks Rank #2.

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