The rise of revolutionary technology and rapid digital transformation have amplified the allure of specialized hardware solutions such as those offered by Dell Technologies Inc. (DELL). The company is set to release its second-quarter results post-market closing on August 31, 2023.
This article evaluates why DELL could be a solid portfolio addition.
Even though painstaking periods of diminished global demand for personal computers have whittled down many industry giants, glimmers of stability emerge in this sector after seven consecutive quarters of declining global PC shipments, evident in recent sequential growth.
The resilience of the U.S. economy mitigates fears among smaller and medium-sized businesses and spurs a steady incline in PC demand. Sectors such as education and government witnessed a rejuvenation in their requirement for desktops and laptops, respectively. DELL held firm as the top vendor in the U.S. desktop market.
Despite India's unforeseen import restrictions creating turmoil within electronic industry leaders, DELL is forecasted to thrive via its line of progressive developments.
In collaboration with NVIDIA, DELL announced significant breakthroughs from ‘Project Helix.' DELL’s Generative AI Solutions will streamline the adoption of full-stack Generative AI with large language models (LLMs). The solutions will help organizations of various scales and sectors securely transform and deliver improved outcomes.
DELL’s newly announced ‘partner-first-strategy for storage,’ pledging 99% of DELL’s storage sales to partners, is aimed to boost sales amid a sluggish market, which could be mutually beneficial for DELL, its partners, and customers.
Institutional investors and hedge funds have recently made changes to their holdings of DELL stock. Institutions hold roughly 74.9% of DELL shares. Of the 790 institutional holders, 325 have increased their positions in the stock. Moreover, 141 institutions have taken new positions in the stock with 18,912,949 shares, reflecting signs of bullishness.
Furthermore, for the second quarter, DELL expects its non-GAAP gross margin to be between $4.9 billion and $5.1 billion and non-GAAP EPS to come between $1.00 and $1.20.
The stock gained 35.7% over the past year to close its last trading session at $56.21. Moreover, the stock is trading above its 50-day and 200-day moving averages of $54 and $45.14, respectively, indicating an uptrend.
Here are some other factors that could influence DELL’s performance in the upcoming months:
Robust Financials
During the fiscal first quarter that ended May 5, 2023, DELL’s total net revenue stood at $20.92 billion. Its gross margin came in at $5.02 billion. Its non-GAAP operating expenses declined 6.3% year-over-year to $3.95 billion. Its non-GAAP net income and non-GAAP earnings per share amounted to $963 million and $1.31, respectively.
For the same quarter, DELL’s change in cash from operating activities came in at $1.78 billion, compared to negative $269 million for the quarter ended April 29, 2022. Its cash, cash equivalents, and restricted cash stood at $7.93 billion, up 8.9% year-over-year. As of May 5, 2023, DELL’s total current liabilities stood at $46.83 billion, compared to $51.65 billion as of February 3, 2023.
Reasonable Valuation
In terms of forward EV/Sales, DELL is trading at 0.72x, 73.3% lower than the industry average of 2.70x. Its forward EV/EBITDA multiple of 6.83 is 54% lower than the industry average of 14.84.
Favorable Analyst Estimates
For the fiscal year ending January 2024, DELL’s revenue and EPS are expected to come in at $86.94 billion and $5.57, respectively. For the fiscal year ending January 2025, Street expects its revenue and EPS to increase 4.6% and 10.7% year-over-year to $90.92 billion and $6.17, respectively.
Furthermore, DELL’s revenue and EPS for the fiscal second quarter (ending July 2023) are expected to come in at $20.84 billion and $1.14, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters, which is impressive.
POWR Ratings Show Promise
DELL’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. DELL has a B grade for Value consistent with the lower valuation relative to its peers.
Also, DELL’s B grade for Sentiment is evident from the favorable analyst estimates.
Within the Technology - Hardware industry, DELL is ranked #11 out of the 42 stocks.
Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, Stability, and Quality. Get all ratings of DELL here.
Bottom Line
With technology progressing at an unprecedented rate, the future of the hardware industry shimmers with immense potential. Emergent, standout technologies are systematically converging with hardware devices, promising to reshape many industries drastically.
During the fiscal first quarter of 2023, DELL maintained pricing discipline, reduced operating expenses, while its supply chain remained robust, recuperating ahead of its competitors. DELL’s strong profitability scenario, cheaper valuation, and promising bottom-line estimates make it a solid buy now.
Further strengthening this standpoint is that DELL returned $5 billion to shareholders over the last six quarters, or 96% of its adjusted FCF. It repurchased 40 million shares for $1.6 billion over the past 12 months, and in the first quarter, it repurchased $251 million of shares.
Moreover, the company paid $276 million in dividends. On August 4, 2023, it paid the shareholders the quarterly dividend of $0.37 per common share. DELL increased its annual cash dividend by 12% to $1.48 per common share, translating to a 2.63% yield on the current share price. Its four-year average dividend yield is 0.74%.
Deutsche Bank analyst Sidney Ho said, “Looking beyond the cyclical downturn, we believe a strong capital returns program could be a source of EPS upside for DELL, especially as its leverage ratio approaches its target level.”
How Does Dell Technologies, Inc. (DELL) Stack Up Against Its Peers?
While DELL has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Technology - Hardware industry: Panasonic Holdings Corp. ADR (PCRFY), TransAct Technologies Incorporated (TACT), and Seiko Epson Corporation (SEKEY), with an A (Strong Buy) rating. For exploring more A and B-rated hardware stocks, click here.
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DELL shares were trading at $57.03 per share on Monday morning, up $0.82 (+1.46%). Year-to-date, DELL has gained 45.19%, versus a 16.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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