VMware, Inc. (VMW) — This leading supplier of virtualization software is a subsidiary of EMC Corporation (EMC). I last recommended VMW stock on July 31, near $100.50, based on its dominance in the server virtualization and hybrid cloud markets.
On Oct. 21, the company reported better-than-expected revenue and earnings for the third quarter. Revenue of $1.52 billion rose 18% year over year, yielding earnings of $0.87 per share. Analysts expected $0.83 on revenue of $1.5 billion. But disappointing Q4 guidance led to downgrades and price target reductions.
Following the announcement, S&P Capital IQ, which has a “hold” rating on VMW stock, raised its 2014 earnings estimate by $0.02 to $3.54 per share, but lowered its 2015 estimate by $0.09 to $4.10 per share. Its analysts cited concerns about softness in certain geographic regions and a large U.S. federal deal that did not close. They lowered their price target by $7 to $93.
VMW stock broke support in late September to early October, just prior to issuing a death cross. Last week, a bounce was held in check by the intermediate downtrend line and 50-day moving average at $87.38.
A break of the support line at $83 would signal that VMW stock is likely to fall again. If you currently own shares, use $82.50 as a stop-loss point.
VMW stock may also be a good short sale candidate. Short sellers should place a stop-loss order above its 50-day moving average and check with their broker for any special requirements, including the ability to borrow shares.
