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Bear Of The Day: VMWare (VMW)

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VMWare (VMW - Free Report) is a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day today.  Let’s take a look at why this stock fell to the lowest Zacks Rank and if it is still something that you should look at.  VMW reports earnings again on February 25, so let take a look at the earnings history.

Earnings History

Anytime I look at a company I look at the earnings history first.  Does management have the capability of guiding Wall Street to a beatable level?  The answer for VMW is yes.

Over the last four quarters I see three beats… and they are good sized beats.

The average positive earnings surprise over the last four quarters is 15%, and that is a good thing, not a bad thing… so why is this the lowest Zacks Rank?

Earnings Estimate Revisions

The key to the Zacks Rank is move in earnings estimates.  Positive estimate revisions send stocks to a higher Zacks Rank and vice versa.  If you are a fundamental investor, you know that higher earnings will lead to higher stock prices.

The estimates for VMW are headed lower.

This isn’t holistically true, as the 2021 number have moved from $6.64 to $7.05, but next year has seen estimates move from $7.21 to $7.00.

The fact that this has made VMW a Zacks Rank #5 (Strong Sell) tells me that estimates are moving up for most stocks.


The valuation for VMW is a ok with the forward PE of 20x just a little over the market multiple.  There was 16% topline growth in the most recent quarter.  The forecast for next fiscal year is topline growth of 8%, but don’t be surprised if that number doesn’t increase soon.

I see a 7x price to book, but that is to be expected from an asset slim name like this.  Price to sales at 5x is actually somewhat low… and that makes me want to dive in deeper into this name.


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