10-year

10-Year Anniversary Promotion (20% off)

Join GuruFocus Premium Membership Now for Only $279/Year

Once a decade discount

Save up to $500 on Global Membership.

Don't Miss It !

Free 7-day Trial
All Articles and Columns »

Dell’s Stock Sets on a Positive Path

January 12, 2013 | About:
Muhammad Bazil

Muhammad Bazil

3 followers
The shares of Dell Inc. (DELL) have shown a surge following the rating upgrade from financial services company, UBS AG (UBS). The rise in Dell’s shares is the highest in more than four months. According to UBS analyst Steven Milunovich, Dell’s prospects seem strong due to the company’s strong product lineup for corporate consumers. Dell is also taking market share from its direct competitor Hewlett-Packard Co. (HPQ) for some of the markets.

All these factors lead up to the conclusion that the prospective financial performance of the company will be positive. Milunovich has raised Dell’s 12-month target price to $10.50 from $9.75. In his report, Milunovich wrote, “Dell has cobbled together an attractive portfolio of enterprise technology.” Considering the shifting trends in the industry, Dell is continuously expanding its product portfolio in order to minimize its business risk and according to the analysts, Dell has succeeded in minimizing that risk. The following chart represents the trend of share price of the company over the course of the past year.

2026498529.jpg

As can be observed from the chart, Dell’s stock showed an overall downward trend throughout 2012; however, the future for the company’s shares seems bright as Dell emerges with a diversified product lineup.

Acquisitions by Dell in Pursuance of Business Transformation

Dell has been attempting to transform itself from a simple PC manufacturer to a more sophisticated technology solutions provider. The strategy used by Dell to pursue diversification in the product portfolio is acquisition of diverse IT companies. Since 2009, Dell has spent more than $12.7 billion on acquisitions and it has acquired 18 companies in that span of time. The company has targeted small and medium sized companies that enhance Dell’s flagship products. The acquisitions also reflect Dell’s endeavor to transform from a supplier of PCs to a business software and networking solutions provider.

The most recent acquisition by Dell has been Credant Technologies. Credant offers data protection solutions to control, manage and secure data transmission, storage and The Cloud. This acquisition also points toward Dell’s attempts to expand its business operations and create a more comprehensive software segment. Credant was the perfect choice for Dell because it caters for a wide market with more than 2 million endpoints, with customers from aerospace and defense, the public sector, retail and consumer, IT and media, and numerous other industries. With the acquisition of Credant, Dell will be able to tap into a potential new market.

Credant has also reported remarkable growth figures in the recent past. The company grew 112% during the quarter ended in October 2012 as against the same quarter in the previous year and the software booking increased by 49% as against the same quarter in 2011. Dell has received positive feedback from its investors upon this acquisition. However, Dell has faced some negative feedback on some previous acquisitions, and the share price of the company fell due to the negative response; the share price of the company has risen, though, following the announcement of the acquisition of Credant.

Army Deal

Another factor that may cause a surge in Dell’s revenue in the current year is the company’s deal with US armed forces to design the medical data storage system for their employees. This is a comprehensive project with a contract price of around $45 million. In my opinion, Dell has been highly fortunate to have struck such a lucrative deal. Since the company has been trying to enhance its business in provision of technology solutions, the completion of this project will be a major milestone for the company that will strengthen Dell’s market position for more such projects.

After the analysis of Dell’s market performance, its endeavors to diversify its business activities, and its major acquisitions, in my opinion, investors should buy the shares in the company. The rationalization behind this recommendation is that Dell has been successful in pursuing a widespread diversification of its business operations, and this will not only ensure a stable financial performance but it will also enhance Dell’s prospective financial performance notwithstanding the industry competition. With operations spread in different markets, high competition in any one of the markets will have a less fierce impact on the overall financial performance of the company. Therefore, buying the company’s stock may be a favorable decision at this point for both short term and long term investors.

About the author:

Muhammad Bazil
Muhammad Bazil is a financial journalist and editor for a variety of websites, public policy organizations, and book publishers. He has written hundreds of published articles and blog posts on topics including budgeting, credit management, real estate and investing. His articles have been featured on the homepage of Yahoo!, MSN and numerous local news websites.

Rating: 1.7/5 (3 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK