22% of VMWare's Float May Trade - UBS

Shares of $24 billion (market cap) software maker VMware (VMW) are down over 6%, or $4.50, at $63.50 this morning, as UBS Securities analyst Heather Bellini notes in a report this morning that with an expiration period for lock-up happening this week, an additional 11 million shares of the stock may trade, which would be about 22% of the float, she notes.

Bellini’s note is actually somewhat positive, with her price target for the stock going up from $60 to $70, despite a “Neutral” rating on the shares.

This week mark’s the first-year anniversary of the vesting of stock options for VMware employees, writes Bellini, while an additional 3.5 million shares become eligible to trade over the next two quarters. VMware has a narrow float in its roughly 85 million shares outstanding because much of the stock is held by a few large companies, including EMC (EMC), Intel (INTC) and Cisco Systems (CSCO).

Bellini notes her “checks” indicate “a healthy demand environment” for the company’s virtualization technology, hence the uptick in her target price. Still, she urges caution because the consensus estimate for the September-ending third quarter of $510 million in sales implies an 11% rise from this quarter, which she thinks is “aggressive” on the part of Street analysts, considering the fall is a seasonally slow period for VMware. She thinks VMware “will need to post solid upside to its June sales forecast in order to keep consensus for the Sept. [quarter] the same.”