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Dell: A Joel Greenblatt-Backed Blue Chip

Dell is a leader in computer hardware

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May 03, 2022
Summary
  • Dell Technologies has seen their earnings per share pop by 114% year over year.
  • The company recently spun off VMWare, the leading virtual systems solution.
  • Value investor Joel Greenblatt was buying shares in Q4 2021.
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Dell Technologies (

DELL, Financial) is a leading computer hardware company which has seen revenues and profits explode, leading investors back the old blue chip. The company’s share price rose a meteoric 127% in 2020, but has now pulled back by back by 22%.

This stock recently caught my attention bevause value investor

Joel Greenblatt (Trades, Portfolio) was buying shares in the fourth quarter of 2021, during which the stock traded at an average price of $55 per share. The share price is down 20% from that average. Thus, could this stock provide an attractive value opportunity?

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Quality business model

Dell Technologies is a leading computer hardware and infrastructure solutions provider. Now although Apple (

AAPL, Financial) steals all the limelight in terms of quality home PCs, Dell truly offers an enticing value proposition for home users and especially corporations. Companies love to talk about Apple products, but go into any large office and Dell computers are everywhere. This is for a few reasons, primarily cost, the Windows operating system, support and more recently, great performance and design for the price (i.e. better perceived value).

Dell recently introduced the new XPS 13 Plus, which looks very similar to a Macbook pro, but according to a review by Windows Central, it has “higher performance." The company also introduced the the world's thinnest gaming laptop, Alienware x14. Dell’s old black box style laptops are a thing of the past; these new laptops are truly innovative.

I also noticed Dell is extremely in tune with market trends and have recently introduced a new 4K webcam which perfectly addresses the work from home trend and has excellent marketing messages to communicate this. The main negative reviews are from users who discovered the product wasn’t compatible with MAC OS. This should have been communicated clearly, but it also shows more Apple customers are preferring to buy a Dell product.

The Infrastructure Solutions division recently introduced Dell PowerProtect Cyber Recovery for Amazon (AMZN) Web Services (aka AWS), giving organizations data protection from hackers, which is another growing corporate priority.

Dell Technologies recently spun off VMWare (

VMW, Financial), the leading virtual systems solution.

Growing financials

Dell has generated fantastic financial results with full year 2021 revenue of $101.2 billion, up 17% year-over-year. The company also achieved record full-year diluted earnings per share of $6.26, up 114%.

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In addition, they announced a quarterly cash dividend policy, with an initial quarterly dividend of $0.33 per share and 2023 dividends of approximately $1 billion to be paid out.

Dell has $9.4 billion in cash, current debt of $5.8 billion and fairly high long term debt of $21 billion. This high debt could be an issue as interest rates rise, but for a mature company, higher debt levels are usually expected.

Valuation

In terms of valuation, the GF Value chart, a unique intrinsic value measure from GuruFocus, rates the stock as modestly overvalued at the current share price.

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However, their price-earnings ratio is just 6, which is ranked 90% better than other companies in the industry, and their enterprise-value-to-free-cash-flow ratio is just 7.

Overall, I believe Dell Technologies is a fantastic company. They are innovating on all fronts and have even started to improve their design to more of an “Apple like” style. From analyzing their product reviews, they seem in tune with the customer and have the financial growth to back it up. The stock looks to be slightly overvalued on the GF Value chart but undervalued based on the price-earnings ratio.

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Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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