Despite macroeconomic challenges, the tech hardware industry is experiencing solid growth due to the broad adoption of technology, rising investments in digitization, and the uptake of emerging technologies.
Given the industry’s growth potential, it could be wise to buy fundamentally strong hardware stocks: HP Inc. (HPQ), Dell Technologies Inc. (DELL), and Daktronics, Inc. (DAKT).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the tech hardware industry is well-positioned to grow.
The tech hardware sector is evolving as enterprises increasingly use technology to engage customers, drive innovation, and boost efficiency. Advanced hardware and equipment are making software relevant. Hardware becomes crucial as it provides the necessary physical infrastructure, which allows the smooth functioning of software.
Investing in advanced hardware and equipment helps improve productivity and efficiency. According to Gartner, global IT spending will reach $4.69 trillion in 2023, marking a 3.5% increase year-over-year. Although spending on devices is expected to decline 10% in 2023, it is projected to rise 4.8% year-over-year to $722.47 billion in 2024.
The IT hardware market is expected to grow at a CAGR of 7.9% to reach $177.11 billion by 2028. Furthermore, the demand for specialized hardware is rising due to the rapid adoption of emerging technologies like artificial intelligence (AI), machine learning, the Internet of Things (IoT), augmented reality (AR), and virtual reality (VR.
Considering these conducive trends, let’s analyze the fundamentals of the three Technology - Hardware picks, beginning with the third choice.
Stock #3: HP Inc. (HPQ)
HPQ provides personal computing and other access devices, imaging and printing products, and related technologies, solutions, and services in the United States and internationally. The company operates through three segments: Personal Systems; Printing; and Corporate Investments.
In terms of the trailing-12-month net income margin, HPQ’s 4.27% is 110.6% higher than the 2.03% industry average. Likewise, its 7.62% trailing-12-month EBIT margin is 63.7% higher than the industry average of 4.66%. Furthermore, the stock’s 27.89% trailing-12-month Return on Total Capital is significantly higher than the industry average of 2.37%.
HPQ’s net revenues for the fiscal third quarter ended July 31, 2023, came in at $13.20 billion. Its non-GAAP net earnings came in at $859 million. The company’s non-GAAP earnings per share came in at $0.86.
Additionally, its cash inflow from operating activities rose 147.7% over the year-ago quarter to $976 million. Also, its free cash flow increased 214% year-over-year to $900 million.
Street expects HPQ’s EPS for the quarter ending October 31, 2023, to increase 6.2% year-over-year to $0.90. Its revenue for the quarter ending January 31, 2024, is expected to increase 1.2% year-over-year to $13.99 billion. Over the past year, the stock has declined 2.8% to close the last trading session at $25.88.
HPQ’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth and Value. Within the B-rated Technology - Hardware industry, it is ranked #9 out of 41 stocks. To see HPQ’s Momentum, Stability, Sentiment, and Quality ratings, click here.
Stock #2: Dell Technologies Inc. (DELL)
DELL designs, develops, manufactures, markets, sells, and supports various comprehensive and integrated solutions, products, and services in the Americas, Europe, the Middle East, Asia, and internationally. The company operates through two segments: Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG).
In terms of the trailing-12-month Capex/Sales, DELL’s 3.02% is 25.4% higher than the 2.41% industry average. Likewise, its 5.54% trailing-12-month EBIT margin is 18.9% higher than the 4.66% industry average. Additionally, its 12.86% trailing-12-month Return on Total Capital is 442.9% higher than the 2.37% industry average.
DELL’s total net revenue for the second quarter ended August 4, 2023, came in at $22.93 billion. Its non-GAAP operating income rose 1.3% year-over-year to $1.98 billion. The company’s non-GAAP net income increased 1.3% year-over-year to $1.28 billion. In addition, its non-GAAP EPS came in at $1.74, representing an increase of 3.6% year-over-year.
Analysts expect DELL’s EPS for the quarter ending January 31, 2024, to increase 0.3% year-over-year to $1.80. Its revenue for the quarter ending April 30, 2023, is expected to increase 6.8% year-over-year to $22.35 billion. Over the past year, the stock has gained 79.5% to close the last trading session at $65.54.
It’s no surprise that DELL has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth and Value. Within the same industry, it is ranked #5. In total, we rate DELL on eight different levels. Beyond what we stated above, we also have given DELL grades for Momentum, Stability, and Quality. Get all the DELL ratings here.
Stock #1: Daktronics, Inc. (DAKT)
DAKT designs, manufactures, markets, and sells electronic display systems and related products for sporting, commercial, and transportation appliances globally. The company operates through Commercial; Live Events; High School Park and Recreation; Transportation; and international segments.
On August 4, 2023, DAKT announced the addition of 14 new LED displays at Gillette Stadium, including the largest outdoor videoboard in a sports venue in the country. These additions expanded the digital landscape by 29,500 square feet, now totaling 47 DAKT LED displays, offering a colossal 48,500 square feet of the digital canvas within Gillette Stadium.
On May 11, 2023, DAKT announced two significant financial transactions. They successfully secured a fresh 3-year, $75 million senior secured credit facility in partnership with JPMorgan Chase. This facility, maturing on May 11, 2026, bolsters its financial standing and sets the stage for future growth.
Additionally, they closed a $25 million convertible debt financing agreement with major shareholder Alta Fox Capital Management, LLC, including convertible promissory notes due on May 11, 2027, and extending the existing standstill agreement with Alta Fox.
In terms of the trailing-12-month Return on Common Equity, DAKT’s 15.36% is significantly higher than the 0.03% industry average. Its 8.80% trailing-12-month EBIT margin is 88.9% higher than the industry average of 4.66%. Likewise, its 1.66x trailing-12-month asset turnover ratio is 169.3% higher than the industry average of 0.62x.
DAKT’s net sales for the first quarter that ended July 29, 2023, increased 35.3% year-over-year to $232.53 million. Its gross profit increased 175.8% year-over-year to $71.15 million.
In addition, its net income came in at $19.20 million, compared to a net loss of $5.33 million in the year-ago quarter. Also, its net income per share came in at $0.42, compared to a net loss per share of $0.12 in the year-ago quarter.
For the quarter ending October 31, 2023, DAKT’s EPS is expected to increase 208.3% year-over-year to $0.13. Its revenue for the quarter ending January 31, 2024, is expected to increase 10% year-over-year to $203.50 million. The stock has gained 199.4% over the past year to close the last trading session at $8.96.
DAKT’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and Value and a B for Sentiment and Quality. It is ranked first in the Technology – Hardware industry. To see DAKT’s Momentum and Stability ratings, click here.
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DELL shares were trading at $66.69 per share on Tuesday morning, up $1.15 (+1.75%). Year-to-date, DELL has gained 70.74%, versus a 12.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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