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The actions of the VMware System Software Editor (VMW) have now lost nearly 9% at the beginning of the session. The company announced its second quarter results for its fiscal year 2020 (fiscal year ending in January) on August 22 after the market closed. The company reported sales of $ 2.44 billion for the second quarter, up 12% from a year earlier. Adjusted EPS for the company increased 4% to $ 1.60.
VMware reported sales of 2.17 billion USD and EPS of 1.54 USD for the second quarter of fiscal year 2020. Wall Street analysts were expecting a turnover of 2.4 billion USD and EPS of $ 1.55 for the second quarter of fiscal year 2020. Although VMware posted quarterly results above Wall Street estimates, its shares fell after the company announced two acquisitions.
VMware is preparing to acquire carbon black and Pivot software
VMware has signed a definitive agreement on the acquisition of Black Black (CBLK) for $ 2.1 billion. Carbon Black is a leading company in the protection of terminals in the cloud. VMware plans to acquire Carbon Black for cash and pay $ 26 per share. Carbon Black shares gained 6.1% today at the new acquisition.
VMW announced another acquisition yesterday, as it plans to acquire Pivotal Software for an enterprise value of $ 2.7 billion. The VMware press release stated:VMware will acquire Pivotal for a weighted price per share of $ 11.71, consisting of $ 15 per share cash for Class A shareholders, and the exchange of common shares of VMware Class B by common shares. of Pivotal Class B Common Shares held by Dell Technologies, at an exchange ratio of 0.0550 Class B VMware Shares for each Class B Pivotal Share. of the merger represents a $ 2.7 billion business value for Pivotal."
The Pivotal Software (PVTL) stock is trading at $ 14.88 and has gained 8.7% of its market value today. These acquisitions resulted in a decline in VMware shares on August 23.
Is the stock of VMW undervalued?
VMW has lost considerable value in the last 12 months. The stock trades at $ 135 per share, 35% lower than its 52-week high. It underperformed the markets and posted a return of -1.6% since the beginning of the year. VMware lost 22.7% in August.
VMware shares fell by 8.3% after NetApp lowered its revenue forecast and investors turned away from cutting technology spending and the ongoing trade war. So, is the stock trading at an attractive valuation after the recent downturn?
VMW shares are traded at a multiple of 18.5x PE. For comparison, earnings are expected to grow at an annual rate of 9.7% over the next five years, suggesting that the stock is still overvalued. However, these estimates were predicted prior to recent acquisitions.
The net results of VMware could improve significantly if they manage to synergize these acquisitions.
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