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.

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