VMWare plunges, but analyst remains neutral

VMWare (VMW) stock got pummeled Tuesday, losing a third of its value after the software company posted soft fourth-quarter revenue and offered a 2008 outlook that disappointed Wall Street. Fears that the company’s stellar growth will slow also punished parent EMC (EMC), whose shares dropped 9% even after the networking storage company posted stronger-than-expected fourth-quarter numbers. The VMWare shortfall got analysts to thinking about what might happen to the company’s volatile shares even before Tuesday’s bloodbath got under way.

In a note late Monday, Robert W. Baird analyst Daniel Renouard cut his price target to $80 from $110, while retaining a neutral rating. Nothing new on that front: He had that same rating back when he began covering the stock back in August - when he dubbed VMWare fairly valued at $60. Since then, VMWare has spiked to $125, calling the fairly valued view into some question, before plunging on Tuesday back to $56.

So what’s Renouard’s call here? Everyone remain on the sidelines, please. “Although we remain big believers in VMware’s growth prospects longer term,” Renouard wrote Monday night, “we believe management’s expectations of license revenue growth deceleration warrants a wait-and-see approach on the stock given macro uncertainty and potential pricing pressure.” Waiting and seeing has worked so well in the past, after all.