VMware Sinks as Wall Street Rejects M&A Update

The tech name is buying Pivotal Research and Carbon Black

VMware, Inc. (NYSE:VMW) stock is down 7.7% today at $136.72, after the virtualization software firm said it is buying cloud concern Pivotal Software (PVTL) and cybersecurity firm Carbon Black (CBLK) in separate deals valued at roughly $4.7 billion. This is offsetting a second-quarter earnings beat for VMW, and has sparked a round of bearish brokerage notes.

At least eight VMW price-target cuts have come down the pike, with Instinet setting the lowest bar at $114 -- a 23% discount to last night's close at $148.09. More broadly, 12 analysts maintain a "buy" or better rating on the tech stock, compared to seven "holds," and one "strong sell." Meanwhile, the average 12-month price target of $180.23 is a 22% premium to current levels.

Options traders have been upbeat toward VMW stock, too. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day call/put volume ratio of 1.66 registers in the 88th annual percentile, meaning calls have been bought to open over puts at an accelerated clip -- though with 10% of the equity's float sold short, some of this may be hedging activity.

Looking at the charts, VMware stock has been sliding since its May 16 record peak at $206.73, down nearly 34%. The shares are now headed for their lowest daily close since Jan. 3, and appear to be on track for their first monthly close below their 20-month moving average since July 2016.