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Nicholas Kitonyi
Nicholas Kitonyi
Articles (321)  | Author's Website |

Dell Technologies Has More Room to Run

The stock is up more than 6%

Shares of software and computing infrastructure giant Dell Technologies Inc. (NYSE:DELL) gained more than 6% on Friday following Thursday’s after-market earnings release. The company’s most recent quarterly results beat analysts' revenue expectations.

While the coronavirus pandemic continues to affect business activity around the globe, companies like Dell Technologies witnessed a significant jump in sales of computing devices, which include personal computers, notebooks and tablets. This was primarily due to a change in the mode of operation of companies that opted to work from home in an effort to curb the spread of Covid-19.

Dell scrapped the plan to issue performance guidance for fiscal 2021 in March due to uncertainties created by the pandemic. However, the company has navigated Covid-19 with relative flexibility amid a change in consumer behavior.

Jeff Clarke, the company's vice chairman and chief operating officer, said in a press release that "customers need essential technology now more than ever to put business continuity, remote working and learning plans into practice."

Highlights from first-quarter results

For the first quarter, Dell Technologies announced revenue of $21.9 billion, which beat analyst expectations of $20.81 billion. Operating income rose 28% to $702 million while net income attributable to the company fell to $143 million, down from $293 million reported in the year-ago quarter.

Revenue from the client solutions group, which accounts for half of total sales, ticked 2% higher to $11.1 billion, while VMware posted double-digit revenue growth of 12% to $2.76 billion. On the other hand, the company’s infrastructure solutions devision recorded a sales decline of 8% to $7.6 billion, resulting in a marginal decline in group revenue of about $10 million from the same period last year.

The company could witness improved sales in the second quarter as more people switch to digital platforms to engage with family and friends. Learning has also shifted to online platforms, thereby increasing demand for personal computing devices.

"In Q1, we saw orders with banking and financial services, government, healthcare and life sciences customers up 15 to 20 percent all to meet immediate needs of their customers, communities and patients,” Clark said.

Valuation

From a valuation perspective, shares of Dell Technologies are trading at a price-earnings ratio of 8.20, which is relatively attractive compared to most of its peers. Shares of Lenovo Group Ltd. (HKSE:00992) are currently priced at an earnings multiple of 10.

The stock of Taiwan-based, Asustek Computer Inc. (TPE:2357) is valued at an earnings multiple of 14.50, while computing hardware giant HP Inc. (NYSE:HPQ) trades at a more compelling valuation of 7.32 after falling by nearly 13% over the last two days.

When we factor in the expected earnings growth for the next five years, Dell Technologies appears even cheaper with a price-earning to growth ratio of 1.24 versus Lenovo’s equivalent of 5.13. On the other hand, HP trades at a PEG ratio of 1.64.

In summary, Dell Technologies experienced a significant decline in net income in the most recent quarter. However, the company appears to be reasonably valued with more compelling attributes than several of its peers.

Disclosure: No positions in the stocks mentioned.

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About the author:

Nicholas Kitonyi
Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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