What is VMW's Intrinsic value?

VMware Inc (VMW) Intrinsic Value Analysis

Executive Summary

As of June 8, 2025, VMware Inc's estimated intrinsic value ranges from $84.36 to $431.31 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $431.31 +202.7%
Discounted Cash Flow (5Y) $391.52 +174.8%
Dividend Discount Model (Multi-Stage) $233.51 +63.9%
Dividend Discount Model (Stable) $101.55 -28.7%
Earnings Power Value $84.36 -40.8%

Is VMware Inc (VMW) undervalued or overvalued?

With the current market price at $142.48, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate VMware Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.62 1.11
Cost of equity 6.7% 11.1%
Cost of debt 4.0% 4.9%
Tax rate 13.4% 18.8%
Debt/Equity ratio 0.17 0.17
After-tax WACC 6.2% 10.1%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 8.1% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $13,350 (FY02-2023) to $23,693 (FY02-2033)
  • Net profit margin expansion from 10% to 16%
  • Capital expenditures maintained at approximately 3% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $114 $53,131M 83.5%
10-Year Growth $132 $60,573M 69.5%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.9%
  • Long-term growth rate: 4.0%
  • Fair value: $233.51 (63.9% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 11.1% (Low) to 6.7% (High)
  • Long-term growth rate: 3.0% (Low) to 5.0% (High)
  • Fair value range: $29 to $175
  • Selected fair value: $101.55 (-28.7% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $3,089M
Discount Rate (WACC) 10.1% - 6.2%
Enterprise Value $30,687M - $49,568M
Net Debt $3,703M
Equity Value $26,984M - $45,865M
Outstanding Shares 432M
Fair Value $62 - $106
Selected Fair Value $84.36

Key Financial Metrics

Metric Value
Market Capitalization $61521M
Enterprise Value $65224M
Trailing P/E 43.10
Forward P/E 35.70
Trailing EV/EBITDA 11.25
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) -100.00%
Debt-to-Equity Ratio 0.17

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $129.39
Discounted Cash Flow (5Y) 25% $97.88
Dividend Discount Model (Multi-Stage) 20% $46.70
Dividend Discount Model (Stable) 15% $15.23
Earnings Power Value 10% $8.44
Weighted Average 100% $297.64

Investment Conclusion

Based on our comprehensive valuation analysis, VMware Inc's weighted average intrinsic value is $297.64, which is approximately 108.9% above the current market price of $142.48.

Key investment considerations:

  • Strong projected earnings growth (10% to 16% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.17)

Given these factors, we believe VMware Inc is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.