The multi-cloud sector is getting crowded but there may be enough revenue to go around The month before its earnings report was rough on VMware (NYSE:VMW) shareholders. The stock fell 30% from a closing price of $167.06 on October 22. If you are one of those holding that heavy bag, the first step towards recouping your loss would be a stellar earnings report. Well, you can check off that box. VMware delivered a double beat after the market closed on November 23. Earnings for the quarter came in at $1.72 which was 11.98% better than the $1.54 consensus of analysts. It was also 3% higher from the same quarter in 2020. Revenue came in at $3.19 billion which was 3% higher than the forecast for $3.12 billion. However, that was 9% higher than the previous year quarter. Furthermore, the company’s chief executive, Raghu Raghuram told Reuters that the company believes it will post revenue global growth in the company’s next fiscal year. “IT spending continues to stabilize going into next year,” said Raghuram. “Our view is that customers will continue to accelerate their application modernization.” However, in after-market trading, the best thing that investors can say is that the report has seemed to stop the bleeding. VMW stock bounced 3% just prior to the market closing but failed to hold that gain. For now, shareholders will have to wait to see if the earnings report will be enough to change the opinion of analysts. A Virtual Necessity For those that are unfamiliar with VMware, the company came on the scene in 2001 with its first virtual machine. The company is now one of the leaders in the data center server visualization market and counts many enterprise data center servers among its client base. VMware is also a player in the hybrid cloud space and multi-cloud management. This is a market that, according to Grand View Research will grow to $32.75 billion by 2029. This calculates to a compound annual growth rate of 26.3%. That’s the good news. The not-as-good news is that this is a very crowded space. And while VMware appears to have a very loyal customer base, it remains to be seen how much of that pie will be available to them. Short-Term Pain For Long-Term Gain However, a larger question mark for analysts appears to be the relatively slow adoption as the company pivots to a subscription-as-a-service (SaaS) model. In its prior quarter, SaaS revenue made up about 25% of total revenue. That was about the same in the company’s current report. Many companies have made this transition to recurring revenue because, in the end, it almost always leads to higher multiples. But while the transition happens, the company is giving up large, upfront license sales for small, recurring revenue streams. And that’s one thing that has analysts starting to lower their price targets. The Bottom Line on VMW Stock Yet another concern is that, although the company has successfully completed its spinoff from Dell (NYSE:DELL), over 50% of the company’s outstanding shares are still controlled by Michael Dell and Silver Lake. Analysts have a consensus rating of Hold on VMware and several analysts have lowered their price targets. With that said, the consensus price target post earnings is $165.69 which would be 42.25% higher than its current price. However, that price target is lower than the stock’s 52-week high which suggests that analysts believe that the current selloff in the stock was justified. Although as I look at the company’s stock chart, it does appear that the selloff is overdone. And that’s why VMW stock is likely to move higher. But that may not happen as soon as some investors would like. That’s why we’re bullish on VMW stock as a long-term buy. However, for investors looking for a more immediate gain, there appear to be better options.
This story originally appeared on Zacks
ABM Industries (ABM) closed at $48.83 in the latest trading session, marking a +0.51% move from the prior day. This move outpaced the S&P 500’s daily gain of 0.17%. Elsewhere, the Dow gained 0.55%, while the tech-heavy Nasdaq lost 0.44%.
Coming into today, shares of the provider of cleaning and other maintenance services for commercial buildings, hospitals and airports had gained 7.08% in the past month. In that same time, the Business Services sector lost 5.08%, while the S&P 500 gained 3.19%.Wall Street will be looking for positivity from ABM Industries as it approaches its next earnings report date. This is expected to be December 15, 2021. The company is expected to report EPS of $0.79, up 14.49% from the prior-year quarter. Meanwhile, the Zacks Consensus Estimate for revenue is projecting net sales of $1.6 billion, up 7.52% from the year-ago period.Investors might also notice recent changes to analyst estimates for ABM Industries. These revisions help to show the ever-changing nature of near-term business trends. With this in mind, we can consider positive estimate revisions a sign of optimism about the company’s business outlook.Based on our research, we believe these estimate revisions are directly related to near-team stock moves. To benefit from this, we have developed the Zacks Rank, a proprietary model which takes these estimate changes into account and provides an actionable rating system.Ranging from #1 (Strong Buy) to #5 (Strong Sell), the Zacks Rank system has a proven, outside-audited track record of outperformance, with #1 stocks returning an average of +25% annually since 1988. The Zacks Consensus EPS estimate remained stagnant within the past month. ABM Industries is holding a Zacks Rank of #2 (Buy) right now.In terms of valuation, ABM Industries is currently trading at a Forward P/E ratio of 14.26. This valuation marks a no noticeable deviation compared to its industry’s average Forward P/E of 14.26.The Building Products – Maintenance Service industry is part of the Business Services sector. This group has a Zacks Industry Rank of 110, putting it in the top 44% of all 250+ industries.The Zacks Industry Rank includes is listed in order from best to worst in terms of the average Zacks Rank of the individual companies within each of these sectors. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.Be sure to follow all of these stock-moving metrics, and many more, on Zacks.com.
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