VMware stock forecast: Can VMW shares shake off SEC charges, staff chaos until Broadcom takeover approval?
Shareholders of VMware (VMW) have had a challenging year, with the US technology company’s stock price responding to waves of positive and negative news.
The company’s acceptance of a $61bn takeover by Broadcom (AVGO) in May saw the VMW stock price soar 41% to $131.99 within a couple of weeks. But it’s since lost around 15%, as of 20 September, and has been hit with an $8m penalty by the US Securities and Exchange Commission (SEC) for allegedly misleading investors.
Here we take a look at the company’s financial performance, latest takeover and SEC news, analysts’ price targets and other factors shaping a VMware stock forecast for 2022 and beyond.
What is VMware?
Founded in 1998, VMware is a leading provider of multi-cloud services for apps, enabling digital innovation with enterprise control.
Its software helps clients tackle problems through technologies such as edge computing, artificial intelligence, and machine learning.
Headquartered in Palo Alto, California, VMware went public on 14 August 2007, listing on the New York Stock Exchange (NYSE) at $29 a share under the ticker symbol VMW.
VMW stock price performance
The VMW stock price struggled through a volatile rise in the past five years, climbing to a record-high of $205 in May 2019. It then experienced a series of slumps, wiping out almost half of its value, as of 20 September.
Although the company has achieved trailing returns of 8.73% over the last five years according to Morningstar data, this is significantly below the industry’s 19.35%. Since the start of 2022, VMW has fallen almost 5%. But that doesn’t tell the full story.
The price had soared 41% from $93.63 on 18 May to $131.99 on 3 June, following the Broadcom takeover announcement, before falling away. Since then the VMW stock price has lost over 15%, as of 20 September.
A new future for VMW?
It was announced back in May 2022 that technology firm Broadcom had agreed to buy VMware for approximately $61bn in cash and stock. The deal, which will also see Broadcom assume $8bn of VMware’s net debt, was unanimously approved by the boards of both companies.
VMware shareholders receive either $142.50 in cash or 0.2520 shares of Broadcom common stock for each VMware share. When the deal completes, which is expected in the current fiscal year 2023, Broadcom Software Group will rebrand and operate as VMware.
It will be incorporating Broadcom’s existing infrastructure and security software solutions as part of an expanded VMware portfolio.
However, reports have suggested that there are concerns among VMware’s staff about the potential fall-out, such as rumours that remote working will be discontinued.
SEC investigation casts a cloud
During September 2022, the SEC charged VMware for misleading investors about its order backlog management practices.
The company pushed revenue into future quarters by delaying product deliveries to customers. This concealed its slowing performance relative to its projections.
Mark Cave, the SEC’s associate director in the division of enforcement, said VMware had deprived investors of important information about its financial performance.
“Such conduct is incompatible with an issuer’s disclosure obligations under the federal securities law,” he stated.
Without admitting or denying the findings in the SEC’s order, VMware consented to a cease-and-desist order and to pay an $8m penalty.
In a statement, VMware noted that the SEC’s comments “do not include any findings” that it failed to comply with generally accepted accounting principles, adding:
Second-quarter earnings
On 25 August 2022, VMware announced fiscal year 2023 second quarter revenue of $3.34bn, which represented an increase of 6% over the previous quarter.
GAAP net income for the second quarter was $347m, or $0.82 per diluted share. That’s down from $0.97 per diluted share on income of $411m for the same period last year – a fall of 16% per diluted share.
Raghu Raghuram, VMware’s chief executive, is pleased with the performance. “We remain committed to helping organizations unlock the full potential of multi-cloud,” he said.
The VMware stock forecast from Zane Rowe, the company’s executive vice president and CFO, noted the focus on the long-term:
Analyst views on VMware
What are the VMware stock predictions from analysts? There are so many variables at play when it comes to the stock price – particularly the impending Broadcom acquisition, according to Danni Hewson, financial analyst at AJ Bell:
As far as Hewson’s VMware stock forecast from a business perspective is concerned, she highlighted how VMware has shifted focus from protecting legacy hardware to the multi-cloud.
Of course, the economic backdrop has played a role in VMware’s current position. “Like most of the tech/growth players this year’s share volatility made it ripe for takeover and it’s got a bolt load of debt hanging over it,” she said.
Hewson also pointed out how first quarter revenues for 2023 were up but lagged consensus expectations, while margins may take a further hit over the next quarter as operating costs rise.
Abhinav Davuluri, sector strategist at Morningstar, has a $147 fair value price for his VMW stock forecast and believes there is a 75% chance of the Broadcom deal being completed at the $138.23 offer price.
Davuluri suggested VMware’s unique value included being the “easy path to embracing any cloud environment” and being able to support legacy compute and storage locations while developing new cloud-based applications
He also highlighted its role in helping organisations achieve the greatest utilisation and security for their networking.
VMware stock forecast: Price targets 2022 – 2025
The stock is rated as a ‘hold’, according to the views of 21 analysts compiled by MarketBeat, as of 20 September. Their consensus VMware stock forecast 2022 suggested the price could reach $139.91 in the next twelve months.
While the VMware share price forecast of the most optimistic analysts expected the price could reach $170, some warned it could fall to $105.
However, according to the algorithmic forecasts of Wallet Investor, the VMware stock forecast 2025 could see the price fall to $80.26 in three years.
Note that analyst and algorithm-based price predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before trading, looking at the latest news, technical and fundamental analysis and wide range of analyst commentary.
Remember that past performance does not guarantee future returns. And never trade money you cannot afford to lose.
FAQs
Is VMware a good stock to buy?
This will depend on your opinion of the stock. As of 20 September, the VMW stock was rated as a ‘hold’ based on the views of 21 analysts in a VMW stock forecast by MarketBeat. However, analysts’ opinions can be wrong. You need to carry out your own independent research to draw a conclusion.
Remember that past performance does not guarantee future returns. And never trade money you cannot afford to lose.
Will VMware stock go up or down?
It’s impossible to know for definite. Many factors will influence the VMW stock price over longer periods. The consensus view of Wall Street analysts is that the stock could reach $139.91, according to average price targets of 21 analysts compiled by MarketBeat, as of 20 September. The targets ranged from $105 to $170. Remember, analysts’ predictions can be wrong.
Should I invest in VMware stock?
It’s important to do your own research and always remember that your decision to invest in the VMW stock should depend on your attitude to risk, your expertise in the market, portfolio composition and your investing strategy.
Remember that past performance does not guarantee future returns. And never trade money you cannot afford to lose.
