Please ensure Javascript is enabled for purposes of website accessibility

Why VMware Stock Jumped 18.4% in November

By Steve Symington – Dec 6, 2018 at 4:36PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The software virtualization leader can thank Dell and a strong third-quarter report for its recent gains. Here's what investors need to know.

What happened

Shares of VMware (VMW -0.95%) climbed 18.4% in November, according to data from S&P Global Market Intelligence, both in response to IBM's (IBM -2.32%) pending acquisition of Red Hat (RHT) and after the cloud computing and software virtualization specialist announced strong fiscal third-quarter 2019 results

On the former, VMware rose early last month after billionaire activist investor Carl Icahn suggested the stock should be worth closer to $300 per share, citing the comparable valuation implied by IBM's $34 billion blockbuster deal to purchase Red Hat. For perspective, Icahn's assertion was a not-so-subtle effort to compel Dell Technologies (NYSE: DVMT) to pay a higher price for shares of its tracking stock -- which is tied to its 81% stake in VMware -- as part of its plan to return to the public markets. 

Man on ladder drawing a yellow line on a brick wall indicating gains

IMAGE SOURCE: GETTY IMAGES

So what

Incidentally, only a few days later Dell raised its offer for each tracking share to $120 (from $109 previously), helping to secure additional shareholder support and leading Icahn to reluctantly abandon his opposition to the deal. 

Still, shares of VMware continued to climb later in the month after the company told investors revenue in its latest quarter had increased 13.4% year over year to $2.2 billion, translating to nearly 27% growth in adjusted earnings per share to $1.56. Both figures easily outpaced consensus estimates, which predicted earnings of $1.50 per share on revenue of $2.17 billion. 

"Q3 was another strong quarter, and we're pleased with our results, which continue to be driven by broad-based strength across our diverse product portfolio and in all three geographies," stated VMware CEO Pat Gelsinger.

Now what

VMware also raised its full fiscal-year guidance to call for revenue of $8.882 billion (up from $8.82 billion before) and for adjusted net income of $6.22 per share (up from $6.14 previously). 

It remains to be seen, then, whether VMware's strong quarter might spur yet another increased offer by Dell Technologies for its tracking stock -- though Dell has currently scheduled a special stockholder meeting for Dec. 11, 2018, to vote on the proposed transaction.

Given its relative outperformance in the meantime, however, I think VMware shareholders should be more than pleased with their company's position today.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends VMware. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

VMware, Inc. Stock Quote
VMware, Inc.
VMW
$106.46 (-0.95%) $-1.02
International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$118.81 (-2.32%) $-2.82
Red Hat, Inc. Stock Quote
Red Hat, Inc.
RHT

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
104%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.