Why Investors Are Bullish About VMware Stock

'We see a compelling risk, reward scenario as we don’t believe recent strategic initiatives and model evolution have been factored into shares,' says global investment firm Oppenheimer in a recent note.

Investment firms are bullish about VMware’s stock in 2020 as the virtualization leader looks to double down heavily on security and container innovation as well as shift its business model toward subscription and Software as a Service.

Global investment firm Oppenheimer recently gave VMware an “outperform” rating with a price target of $200. “We see a compelling risk/reward scenario as we don’t believe recent strategic initiatives and model evolution have been factored into shares,” said Oppenheimer in a note.

The investment firm said it's optimistic about VMware’s push into containers with Project Pacific and its upcoming Tanzu portfolio as well as its $2.7 billion acquisition of Pivotal Software.

[Related: 5 Things You Need To Know About VMware’s Acquisition Of Pivotal]

In December, Piper Jaffray began covering VMware shares with an “overweight” rating touting the virtualization superstar’s hybrid cloud strategy, which includes VMware Cloud on AWS.

Wells Fargo and Co. recently set a “buy” rating for VMware and also set a $200 price target for the company. In late 2019, BMO Capital Markets increased their price target of VMware from $160 per share to $192, while giving VMware an “outperform” rating.

Many of the investment firms touted VMware’s innovation push in containers, its recent $2.1 billion acquisition of endpoint security leader Carbon Black and the company’s sales growth over the past several quarters.

VMware, which Dell Technologies owns an 82 percent stake in, has been posting stellar revenue gains as of late.

For VMware’s fourth fiscal quarter 2019, which ended Feb. 1, 2019, the company reported revenue of $2.6 billion, up 16 percent year over year.

VMware’s biggest investment in 2019 was its move to become the “world-standard” Kubernetes, which at one time appeared to be a threat. However, VMware became the second largest contributor to Kubernetes in 2019 thanks to organic innovation as well as the acquisitions of Bitnami, Pivotal and startup Heptio, which was founded by two of the original creators of Kubernetes technology.

The company last year unveiled the centerpiece of its Kubernetes strategy with VMware Tanzu, a portfolio of products and services slated to enhance the capabilities of VMware Pivotal Container Services (PKS). Tanzu has a cross-cloud Kubernetes management console called Tanzu Mission Control, which is now in beta testing with customers, to yield a fully native Kubernetes environment within vSphere.

VMware’s stock is currently trading at $151.67 per share. Over the past 12 months, the Palo Alto, Calif.-based company’s stock hit a high of $205.52 per share in May and has dipped as low as $130.56 per share in August.