EDITOR’S NOTE: Update of Wednesday, August 22: We can’t help but watch with some astonishment this morning as VMware continues to climb ever higher. By noon, the stock was up another nearly $7 a share (10.5 percent for the day), to $72.80. EMC had inched up another 45 cents, to $19.73. Below is our original post, from Tuesday, August 21, trying to sort out some method to the seeming madness:
The market continues to weigh the value of network-storage company EMC (NYSE: EMC) as stock in its prodigy virtualization subsidiary, VMware (NYSE: VMW), climbs skyward.
EMC stock wavered and even declined last week as VMware shot far beyond the $29 opening price of its public offering last Tuesday, leading us to ask why VMware’s strong IPO wasn’t exerting more of a coattail effect on the parent company, which owns 87 percent of its stock.
But the Hopkinton, MA, storage leader regained a few percentage points as the week ended, and today it’s riding even higher, thanks to at least four factors: VMware’s continued climb; a Caris & Co. report Friday upgrading the stock from “average” to “above average”; a Barron’s article yesterday spotlighting the Caris report and saying the stock could rise 20 percent or more over the next year; and an EMC announcement Monday of new monitoring software for corporate voice-over-Internet systems. By noon today, EMC was up 3.5 percent to $19.30.
That climb could continue, given that EMC has balanced growth in core businesses and multiple revenue streams, according to analysts, not to mention plans to repurchase at least $1 billion worth of its stock. Earlier this month, Robert W. Baird analyst Dan Renourd reiterated his Outperform rating on EMC, calling the company’s core business “undervalued.” Baird’s target price is $24 a share. The most recent estimate we saw from Goldman Sachs set a 12-month target of $22.
Meanwhile, after hovering between $55 and $58 at the end of last week, VMware resumed a strong upward climb today. At midday today, the stock was selling for just under $63, up almost 10 percent.
