Dell Rallies After Beating Analyst Estimates

Key Insights

  • Dell reported fiscal Q1 2023 results, easily beating analyst estimates on both earnings and revenue. 
  • The market was worried about supply chain issues and PC demand, but the report indicated that Dell showed strong performance in the current environment. 
  • Despite the recent rebound, Dell is valued at just 7 forward P/E. 

Dell Stock Moves Above The $50 Level

Shares of Dell gained strong upside momentum after the company released its quarterly report. The company reported revenue of $26.1 billion and adjusted earnings of $1.84 per share, beating analyst estimates on both earnings and revenue.

Dell stock has been under pressure in 2022 amid worries about weaker PC demand after the end of the acute phase of the coronavirus pandemic. The recent China’s decision to force government agencies and state-owned companies to use domestic PCs also served as a negative catalyst for Dell and other companies in the industry.

However, the first-quarter report indicated that demand remained strong. Dell managed to show good results despite supply chain issues and coronavirus lockdowns in China. Expectations for Dell’s first-quarter performance were low, so the stock managed to gain strong upside momentum and moved towards the $50 level.

What’s Next For Dell Stock?

Analysts expect that Dell will report earnings of $6.61 per share in the current fiscal year and $7.16 per share in the next fiscal year, so the stock is trading at just 7 forward P/E.

Analyst estimates have been moving lower in recent months, but this trend could change after the better-than-expected quarterly report. Despite the recent rebound, Dell remains cheaply valued, which could attract speculative traders.

At the same time, it should be noted that Dell stock is up by more than 30% from recent lows, so it may face some resistance in the upcoming trading sessions due to profit-taking.

To keep up with the latest earnings updates, visit our earnings calendar.

NVIDIA Is Down By 5%, Here Is Why

Key Insights

  • Baird downgraded NVIDIA due to slowing demand and order cancellations. 
  • This is not the first downgrade in the industry, and the recent evidence suggests that demand weaker than previously expected. 
  • NVIDIA remains a richly valued stock, which may present a problem if Treasury yields keep moving higher. 

NVIDIA Stock Falls After Analyst Downgrade

Shares of NVIDIA gained strong downside momentum after Baird downgraded the stock due to concerns about order cancellations. The investment firm stated that demand in the PC segment was slowing down, while sanctions on Russia would also hurt the demand for NVIDIA products.

This is not the first time that slowing PC demand is mentioned ahead of the earnings season. At the end of March, HP and Dell were downgraded by Morgan Stanley as analysts believed that hardware budgets would be cut.

At this point, it looks that the recent downgrades highlight the emerging trend, so traders should keep a close eye on the stocks in this market segment ahead of the earnings season.

What’s Next For NVIDIA Stock?

Analysts expect that NVIDIA will report earnings of $5.66 per share in the current year and earnings of $6.79 per share in the next year, so the stock is trading at 32 forward P/E.

While these valuation levels may look cheap for NVIDIA, it should be noted that concerns about the slowdown of the company’s growth may put material pressure on the stock.

In addition, Treasury yields keep moving higher, which is bearish for richly valued tech stocks like NVIDIA. The yield of 10-year Treasuries has already managed to get above the 2.75% level and keeps moving towards the psychologically important 3.00% level.

It remains to be seen whether traders will be ready to pay more than 30 forward P/E for a company whose growth may be slowing down due to the emerging weakness in the semiconductor industry.

For a look at all of today’s economic events, check out our economic calendar.

Why HP Stock Is Down By 6% Today

Key Insights

  • Morgan Stanley cuts its outlook for PC sales and downgrades HP and Dell. 
  • The demand boost from the pandemic may be over, and PC sales could get back to the previous downside trend. 
  • HP stock may need additional upside catalysts to get back to recent highs near the $40 level. 

HP Stock Is Under Pressure After Analyst Downgrade

Shares of HP gained downside momentum after Morgan Stanley downgraded the stock due to expectations of weak PC sales. Dell was downgraded as well.

Morgan Stanley believes that hardware budgets could be cut, which would hurt HP sales. In addition, demand could slow down as the world gets back to normal after two years of pandemic, which boosted PC demand.

The market reacted nervously to the analyst downsgrade, and HP stock moved from the $40 level to the $36 level.  Yesterday, HP stock made an attempt to settle above yearly highs, but the downgrade has clearly hurt the positive momentum.

What’s Next For HP Stock?

Analysts expect that HP will report earnings of $4.28 per share in the current year and $4.43 per share in the next year, so the stock is trading at just 8 forward P/E, which looks cheap for the current market environment.

However, Dell is even cheaper at 7 forward P/E, so the market does not have too much appetite for computer hardware stocks.

In this environment, worries about slowing demand may ultimately put more pressure on HP stock. Companies and individuals that have upgraded their hardware in 2020 – 2021 may not rush to renew it, and PC sales may get back to the previous downside trend.

This is a material risk for HP stock, which may need additional positive catalysts to get back to recent highs. At the same time, the current valuation levels may provide some support to the stock in the upcoming trading sessions.

For a look at all of today’s economic events, check out our economic calendar.

Wall Street Week Ahead Earnings: Caesars Entertainment, Home Depot, Lowe’s and Moderna in Focus

Investors will focus on December quarter earnings for stocks that are economically sensitive, which should show better profits than technology stocks. Increasing Treasury yields and risk aversion could hit the stock market hard over the coming months. In addition, investors will closely monitor the latest news on the rapidly spread Omicron coronavirus variant to see how it impacts earnings in 2022.

Earnings Calendar For The Week Of February 21

Monday (February 21)

The New York Stock Exchange and NASDAQ will all be closed on Monday, February 21 for President’s Day.

Tuesday (February 22)

IN THE SPOTLIGHT: CAESARS ENTERTAINMENT, HOME DEPOT

CAESARS: The largest casino-entertainment Company in the U.S. company is expected to report its fourth-quarter loss of $-0.71 per share, up over 58%, better compared to a loss of $-1.7 per share seen in the same period a year ago. The Las Vegas-based company would post revenue growth of over 77% to $2.58 billion.

Caesars Entertainment (CZR) is currently trading at below its historical NTM multiple on 2023e EBITDAR, despite our expectation of >1,000bps higher core casino margins and faster growth. We believe regional casino markets (55% of mix) have structural tailwinds from customers acquired post-COVID and sports betting legalization,” noted Thomas Allen, equity analyst at Morgan Stanley.

“We expect CZR to improve its sports betting / iGaming market share in coming qtrs, a key driver to Gaming stocks in recent years. High leverage now (7.5x at YE21) but significant FCF and a planned Vegas asset should drive leverage to ~5x by YE22, opening up a broader investor base.”

HOME DEPOT: The largest home improvement retailer in the United States is expected to report its fourth-quarter earnings of $3.22 per share, which represents year-over-year growth of over 17% from $2.74 per share seen in the same period a year ago.

The home improvement retailer would post revenue growth of over 7% to $34.6 billion. The company has beaten consensus earnings estimates in most of the quarters in the last two years, at least.

“We are Overweight Home Depot (HD) given its best-in-class nature and structural housing tailwinds beyond N-T disruption from COVID-19. The stock seems attractively valued in the context of a potential 2021/2022 economic/housing boom,” noted Simeon Gutman, equity analyst at Morgan Stanley.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 22

TICKER COMPANY EPS FORECAST
CNP CenterPoint Energy $0.33
HR Healthcare Realty Trust $0.44
HD Home Depot $3.22
M Macy’s $1.91
MDT Medtronic $1.38
PANW Palo Alto Networks $-0.42
TOL Toll Brothers $1.26

 

Wednesday (February 23)

IN THE SPOTLIGHT: LOWE’S

Home improvement retailer Lowe’s is expected to report its fourth-quarter earnings of $1.69 per share, which represents year-over-year growth of over 27% from $1.33 per share seen in the same period a year ago. The company that distributes building materials and supplies through stores in the United States would post revenue growth of over 2% to $20.82 billion.

“We view Lowe’s (LOW) favourably given its longer-term transformation opportunity and structural industry tailwinds, with substantial near-term uplifts from COVID-19 spending shifts that likely translate to longer-term sales retention,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“Assuming a healthy underlying housing backdrop, we think comps can accelerate longer-term from stronger sales/sq ft trends, driven by e-comm accelerating, better in-stocks, product refreshes/exclusive launches, greater traction with Pro initiatives, and removing friction from the customer shopping experience. Combined with productivity initiatives, this should enable EBIT margin expansion going forward.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 23

TICKER COMPANY EPS FORECAST
BBWI Bath & Body Works $2.25
BCS Barclays $0.29
EBAY eBay $0.82
HEI Heico $0.57
NTAP NetApp $1.07

 

Thursday (February 24)

IN THE SPOTLIGHT: MODERNA

Moderna, the biotech company focused on drug discovery, is expected to report its fourth-quarter earnings of $8.62 per share, which represents year-over-year growth of over 1,340% from a loss of -$0.69 per share seen in the same period a year ago.

The Massachusetts-based biotechnology company would post revenue growth of 1,075% to around $6.71 billion.

“We are Equal-weight Moderna. While we believe there is long-term upside for Moderna, we believe the significant valuation increase associated with the success of the COVID-19 vaccine limits the near-term upside,” noted Matthew Harrison, equity analyst at Morgan Stanley.

“The company has taken an industrialized approach to developing mRNA based therapeutics and has rapidly generated a broad pipeline of 21 programs, 11 of which have entered clinical development. We believe Moderna’s mRNA drug development platform is more diversified and scalable compared with competitors, and is validated through broad partnerships with Merck and AstraZeneca. We see vaccines and rare diseases as the key valuation drivers of the company.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 24

TICKER COMPANY EPS FORECAST
ADSK Autodesk $0.89
AXON Axon Enterprise $-0.07
SQ Block $-0.06
CVNA Carvana $-0.76
DELL Dell Technologies $1.94
DISCA Discovery $0.84
GCI Gannett $-0.03
NTES NetEase $0.82
NKLA Nikola $-0.46
VMW VMware $1.44
ZS Zscaler $-0.57

 

Friday (February 25)

TICKER COMPANY EPS FORECAST
AES AES Corp. $0.46
CNK Cinemark Holdings $-0.16
DSX Diana Shipping $0.30
SSP E.W. Scripps $0.46
FL Foot Locker $1.46

 

The 3 Things Investors Have to Know Today

The move eliminates a bit of uncertainty by maintaining the central bank leadership that investors are already familiar with, but it also eliminates the possibility of a more dovish Fed Governor Lael Brainard becoming the next Fed Chair.

Interest rate markets

The interest rate markets have reacted accordingly with odds of three interest rate hikes in 2022 now being the most popular bet. The 10-Year Treasury punched up beyond 1.60% and several of the bigger tech stocks took it on the chin as talks of higher interest rates circulate.

Higher interest rates have many inside the market thinking faster economic growth, where cyclical sectors like Financials tend to benefit. In other words, we might be seeing more “rotation” out of technology and into financials as we move towards year end.

There’s some buzz that tech stock valuations could see some compression if long-term interest rates increase, where as the financials would be a beneficiary. We can potentially see “tax-loss selling” .

Oil market

The oil market is also creating some rotation in capital as the U.S., China, Japan, India, and South Korea prepare for a coordinated release of supplies from strategic stockpiles. Not surprisingly, OPEC is not happy about this as the release of an estimated +35 million barrels from the U.S. alone could change the current supply-demand dynamics.

OPEC claims the release is unjustified and says it may need to reassess the amount of its monthly production increases. Some interpret this as a threat by OPEC to retaliate against global oil importers and not surprisingly is raising concerns about a global energy showdown that could send oil and other energy prices soaring even higher further out on the horizon. OPEC’s next production meeting is December 2.

Biden is expected to make an announcement in regard to the stockpile release today.

Data to watch today

In economic data, investors will be digesting preliminary reads from IHS Market for Manufacturing and Services PMI. Bulls are hoping to see more evidence that supply chain logjams are starting to clear after reports indicating that ports and shippers are starting to make some headway on the backlog along the West Coast. Data yesterday showed Existing Home Sales rose again in October, though total sales were down nearly -6% compared to last year.

At the same time, the median price for single-family homes rose +13.5% year-over-year to $360,800. It’s worth noting that at least part of the increase in the median sales price has been driven by a big jump in “luxury” home sales. By price category, sales of homes priced under $250,000 fell -24% year over year in October, while sales of homes priced between $750,000 and $1 million rose +25%, and sales of million-dollar plus homes were up +31%.

New Home Sales for October are due out on Wednesday followed by Pending Home Sales next Monday. On the earnings front, results are due today from American Eagle, Best Buy, Cracker Barrel, Dell, Dick’s Sporting Goods, Dollar Tree, The Gap, HP, JM Smucker, Medtronic, and Nordstrom. Tomorrow we have John Deere reporting earnings.

Dell Surges After Agreeing to Cash Dividend for VMware Spinoff

Dell Technologies Inc. (DELL) shares jumped 8.5% in extended-hours trade Wednesday after the PC maker said it plans to proceed with a spinoff of its 81% stake in enterprise software firm VMware.

The deal, which both parties expect to close in the fourth quarter, will see Dell and its shareholders receive a collective one-time cash dividend of $11.5 billion to $12 billion from VMware. Management said it intends to use the proceeds from the transaction to pay down debt and position the company for an investment-grade credit rating.

“After a comprehensive review of potential strategic options, both parties determined that this transaction will simplify capital structures and create additional long-term enterprise value,” Dell said in a statement cited by CNBC.

Through Wednesday’s close, Dell stock has a market capitalization of $70 billion and trades 26.48% higher since the start of the year. Over the past 12 months, the shares have gained around 125%. Valuation wise, the stock trades at 11.39 times projected earnings, slightly above its five-year average multiple of 10.64 times.

Wall Street View

Earlier this month, Morgan Stanley analyst Katy Huberty raised the investment bank’s target on Dell to $107 from $98 while maintaining her ‘Overweight’ rating. As well as being bullish about the VMware spinoff, Huberty believes higher PC demand and exposure to the mid-market supports earnings moving forward.

Broker research elsewhere remains mixed. The stock receives 12 ‘Buy’ ratings and 9 ‘Hold’ ratings. Currently, no analysts recommend selling the shares. Twelve-month price targets range from a Street-high $110 to a low of $79. As of yesterday’s close, the shares trade at a 3% premium to the $90 median target.

Technical Outlook and Trading Tactics

Dell shares have remained in a steady uptrend over the past year, with gains accelerating in recent weeks. This may indicate that investors have baked in most of the positive news surrounding the VMware spinoff. Furthermore, the relative strength index (RSI) has made a shallower high relative to price over the last month, suggesting waning momentum from the bulls.

Active traders should think about taking a short sale if the stock stages an intraday reversal Thursday. In terms of trade management, look to buy back the shares near last month’s swing low at $84.81. This area also finds support from the 50-day simple moving average (SMA). Protect capital with a stop-loss order placed above the high of today’s price bar.

Dell Chart

For a look at today’s earnings schedule, check out our earnings calendar.

Dell Reports Surprise Revenue Growth in Q3; Target Price $82

Dell Technologies Inc, an American multinational technology company headquartered in Texas, reported a surprise quarterly revenue growth of about 3% to $23.48 billion as demand for remote working devices and desktops and notebook computers increased during the COVID-19 pandemic.

The leader in digital transformation said its total revenue rose 3% to $23.5 billion in the three months ended October 30, beating market expectations of a drop of 4.4% to $21.85 billion. Diluted earnings per share up 64% to $1.08, non-GAAP diluted earnings per share up 16% to $2.03, in line with the Wall Street estimates.

“Dell had record shipments, revenue, and profitability for its computer division, helping make up for weakness experienced within the server and storage business unit. While the pandemic may only be a temporary gusty tailwind for computer demand, we believe Dell’s hybrid-cloud offerings can provide it with a sustainable presence in the IT infrastructure stack for customers. We are maintaining our $65 fair value estimate and see shares as fairly valued,” said Mark Cash, equity analyst at Morningstar.

Dell forecasts revenue to grow 3% to 4% in the fourth quarter, implying a range between $24.18 billion and $24.42 billion, higher than the market expectations of $23.09 billion.

“While explicit guidance was not provided for fiscal 2022, Dell is cautiously optimistic that the demand environment for IT spending is improving. The company also believes it may be on the cusp of achieving investment-grade credit quality, which is up to the agencies and will continue to prioritize paying down its obligations,” Morningstar’s Cash added.

Dell Technologies shares closed 1.37% higher at $70.33 on Tuesday; the stock is up over 35% so far this year.

Executive Comments

“We met unprecedented demand for remote work and learn solutions this quarter while increasing revenue to $23.5 billion. At the same time, we accelerated our as-a-Service strategy and hybrid cloud capabilities at the edge – positioning us to win in these growing markets and making it easy for customers to manage data and workloads across all their operations,” said Jeff Clarke, vice chairman and chief operating officer.

Dell Technologies Stores Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at $72.78 with a high forecast of $82.00 and a low forecast of $60.00. The average price target represents a 3.48% increase from the last price of $70.33. From those ten analysts, seven rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $82 with a high of $116 under a bull-case scenario and $39 under the worst-case scenario. The firm currently has an “Overweight” rating on the technology company’s stock. JP Morgan raised their target price to $80 from $70 and UBS assumed coverage with a buy rating and set the target price at $80.

Several other analysts have also upgraded their stock outlook. Evercore ISI raised their target price to $75 from $70; BofA Global Research upped their price objective to $75 from $70; Deutsche Bank increased their stock price forecast to $72 from $65; RBC raised their target price to $80 from $48; Citigroup upped their price target to $75 from $55.

Analyst Comments

“Dell is a full-stack technology provider managing more data than any other IT provider, which positions the company well to capitalize on the ‘Data Era’. A path to IG rating in the next ~12 months along with accelerating market share gains across ISG and CSG segments warrant a valuation in-line with peers,” said Katy Huberty, equity analyst at Morgan Stanley.

“Dell’s strategic evaluation of its VMware stake (announced 7/15/20) and commitment to go-to-market synergies positions the company to unlock trapped value while retaining operational exposure to a key asset. Our base case valuation assumes a 50% probability of a VMware spin, meanwhile, our bull case valuation assumes a 100% probability,” Huberty added.

Upside and Downside Risks

Risks to Upside: 1) VMware spin and cash dividend accelerate core debt pay down. 2) Faster recession recovery & pent up demand. 3) Stronger share gains across PCs, Servers and Storage – highlighted by Morgan Stanley.

Risks to Downside: 1) Dell and VMW don’t agree on terms for a VMW spin. 2) Longer recession accelerates public cloud migration & legacy server/storage declines. 3) Rate of share gains across servers & storage is short-lived. 4) Slower debt paydown vs guidance.

Check out FX Empire’s earnings calendar

Dell Technologies Exploring Options of $50 Billion Stake Spinoff in VMware

Dell Technologies Inc, an American multinational technology company headquartered in Texas, is exploring options of a spinoff for its $50 billion stake in VMware Inc to increase its stock value, according to a Wall Street Journal report.

The tech giant has recently sought options either to sell its existing stake or consider other options, including the full buyout of VMware. People familiar with the matter told the WSJ that the companies are working with outside advisers. The share offload will also come a long way in helping Dell to ease its $48 billion debt load.

However, both the companies are unlikely to ink a deal this year as the examinations are at an early stage and Dell may even choose to opt-out and do nothing.

The review is aimed at addressing the difference in Dell’s market value – roughly $36 billion as of June 23 and the 81% stake value in VMware. The gap indicates that Dell’s PC and data storage business is gaining very less or no attention in the market. However, dismantling the companies could add value further, the international daily newspaper based in New York City added.

Immediately after The Wall Street Journal reported on the review, investors’ optimism soared, pushing shares of both companies higher. On Tuesday, Dell shares jumped over 14%, following a 1.5% gain to close at $49.01, while VMware climbed 8% and closed about 1% higher $149.23.

Dell outlook and target price

Eight analysts forecast the average price in 12 months at $48.57 with a high of $55.00 and a low of $42.00. The average price target represents a -0.90% decrease from the last price of $49.01, according to Tipranks. From that, two analysts rated ‘Buy’, six rated ‘Hold’ and none rated ‘Sell’.

It is good to buy at the current level for the short-term as 20-day Moving Average and 20-200-day MACD Oscillator signals a buying opportunity.

On June 1, Citigroup raised price target to $55 from $40. Last month, Deutsche Bank raised price target to $55 from $52, Instinet raised to $55 from $35, Credit Suisse raised to $44 from $41 and Evercore ISI raised target price to $54 from $46.

VMware outlook and target price

Eighteen analysts forecast the average price in 12 months at $170.31 with a high of $200.00 and a low of $140.00. The average price target represents a 14.13% increase from the last price of $149.23, according to Tipranks. From that, twelve analysts rated ‘Buy’, six rated ‘Hold’ and none rated ‘Sell’.

It is good to buy at the current level as 50-day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity. Today, Stifel raised to ‘Buy’ from ‘Hold’; raised target price to $196 from $166. In May, CCFRA raised to ‘Buy’ from ‘Hold’, raising the target price to $180 from $154; BMO to $165 from $152 and Wells Fargo raises to $200 from $190.