VMware, Inc. (VMW): Currency Headwinds Should Be Watched

VMware, Inc. (NYSE:VMW) is slated to reveal its financial numbers on April 21, for the first quarter. The company’s earnings surpassed the Street analysts’ expectations in the last four quarters. The current indications suggest that there should not be any problem in the company beating the Street earnings predictions one more time.

What to watch out for?

The Chinese business did well in the fourth quarter and the expectation from there is good. However, the number would closely need to be watched considering the slowdown in the Chinese economy.

There was a slight improvement in Japan during the fourth quarter and management had stated that they expect the Japanese business to do well and get back on track.

Impact of currency headwinds on the company (Management had projected EUR/USD at average of 118)

Cash Flow from operations is expected to be around $2 billion, as projected by management. Any upside on that would be a bonus. However, anything less than the number projected would not be cheered by the market.

Positive Developments

One of the favorable factors was that there were no negative sentiments to impact the results of VMware, Inc. (NYSE:VMW). On the other hand, there is some favorable or positive news that would be beneficial to most of the companies in the software segment. For instance, there appears to be an increase in spending by the government, which should be a good sign for the company engaged in the cloud.

Spending, among the Federal government in the United States, has reportedly been increasing, providing the much-needed tailwinds for IT companies. In addition to this, the financial services provider would have also spent either flat or slightly higher spending towards IT. On top of these favorable factors, there was a strengthening spending outlook from the European government.

Analyst Comments

In a recent note to clients, Jefferies said that VMware, Inc. (NYSE:VMW) was one of the stocks to deliver good earnings for the March quarter. The brokerage cited favorable climate from the financial services provider and government spending environment which account for 50% of international spending. Their spending indicated higher in the March quarter.

Jefferies pointed out the lowering of pricing by the leading cloud storage software provider. The company bets that its vCloud Air product provides higher storage performance and compute power than its rival Microsoft Corporation (NASDAQ:MSFT)’s Azure. The pricing and the capability should help boost its earnings.

Street Expectations

In the last two-month period, Street analysts have not revised their earnings expectations from VMware, Inc. (NYSE:VMW). Currently, Street analysts’ are projecting EPS growth of 5.0% on a revenue uptick of 10.2% from the last year’s first quarter results. This translates into 84 cents a share and $1.50 billion in revenue.

Given the ground realities and Jefferies’ expectations, VMware, Inc. (NYSE:VMW)’s earnings are most likely to come ahead of the expectations for one more time

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.
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