Dell s Stock Continues to Dive on Earnings
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Why Dell's Stock Is Reaching All-Time Highs
From surging PC demands and new as-a-service offerings to its likely VMware spin-off later this year, here is why Dell's stock is hitting an all-time high.
Dell Technologies stock has been trading at all-time highs this month at over $76 per share as its PC business skyrockets with solid sales growth and innovation slated for 2021 despite the global COVID-19 pandemic.
The $92 billion Round Rock, Texas-based infrastructure giant's DELL stock is currently trading at $76.61 per share, which is up a whopping 53 percent compared to Dell's share price of $49.83 one year ago today. Dell Technologies has several positive tailwinds ahead of it in 2021 including the strongest PC market in a decade, new as-a-service offerings and the likely spin-off of VMware.
Last month, global investment firm Citi named Dell's stock a top pick for 2021. Jim Suva, Citi's IT hardware analyst, named Dell his top stock for this year and added Dell to the company's 'U.S. Focus List.' He said there's near-term PC growth opportunities for Dell with a likely boost in enterprise demand in the second half of 2021.
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"Our 2021 outlook is based on our view that the consumer strength recently experienced will be stronger for longer as demand for many products such as PCs, tablets, video cameras, wearables, and Apple products goes beyond the holiday season and sets up for a stronger than normal 2021 first half," said Suva in an email to CRN regarding the computer hardware sector.
Suva has raised his price per share target on Dell from $82 per share to $90 per share.
PC Sales Are Through The Roof
The global COVID-19 pandemic has fueled massive growth demands for Dell PCs due to the new remote workforce, while Dell products such as its Chromebooks are surging with the rise of remote learning.
In 2020, Dell shipped 50.3 million PCs across the globe, up from 46.5 million in 2019, according to research firm IDC. In the third quarter of 2020 alone, Dell PC shipments spiked 27 percent year over year by shipping 15.8 million PCs, capturing 17 percent of the global PC market shipment share.
The total number of PCs shipped worldwide in 2020 reached 302.6 million, representing a 13.1 percent increase compared to 2019, according to IDC. The PC market hasn't witnessed such a high annual growth rate since 2010.
During Dell's most recent third fiscal quarter 2021, the company's Client Solutions Group -- which includes Dell PCs, notebooks and tablets – reached an all-time high of $12.3 billion, up 8 percent year over year, with operating income of $1 billion.
"Our client solutions group had an outstanding quarter delivering record shipments, revenue and operating income," said Jeff Clarke, chief operating officer and vice chairman of Dell Technologies during the company's third quarter earnings call in November. "Our wide range of PCs, including Chromebooks, are providing students everywhere with the essential learning tool they need. The pandemic has expanded consumer use of online purchasing, which is a big area of focus for us."
VMware Spin-off In 2021
Dell owns an 81 percent majority stake in VMware, the world's dominant virtualization leader and rising hybrid cloud software standout. Dell will likely spin off its stake in VMware to Dell Technologies and VMware shareholders later this year in a move that will boost both companies, said Dell CEO and VMware Chairman Michael Dell in an interview with CRN last year.
"It simplifies the capital structures, it enhances strategic flexibility and gives both companies more flexibility, while we continue with the mutually beneficial strategic and commercial partnership that we've had for many, many years that has worked extremely well and it continues to," said Dell. "So this is different from selling VMware—we are not selling VMware, by the way. Some people are a little confused about that."
Citi's Suva said Dell's potential VMware spin-off this year, which VMware would accompany with a special cash dividend to Dell of potentially $10 billion, will Dell cut down its debt stemming from his $67 billion acquisition of EMC in 2016.
Suva has raised his price per share target on Dell from $82 per share to $90 per share, adding that the VMware's spin-off would be an "added bonus."
If all goes as planned, Dell will not spin off its shares of VMware before September 2021 for tax reasons. Dell is seeking to get it to qualify as tax-free for federal income tax purposes.
Dell's Business Stable During COVID-19
Dell's business has been stable throughout the pandemic which has forced many enterprises to pause on large IT hardware spending. Dell is the leader in IT hardware, selling more servers, storage and hyperconverged infrastructure than any other company in the world.
Although total sales around servers and storage hardware fell in calendar year 2020, Dell's overall revenue has been stable.
From February to October 2020, Dell Technologies sales reached $68.1 billion, representing flat growth year over year. However, with less operational expenses, Dell's operating income was nearly $3 billion, a 56 percent improvement year over year.
Dell's Clarke said the company expects both server and storage sales to pick back up this year. "We think if the market responds, companies can no longer defer their investments in infrastructure – and that's the rebound," said Clarke.
Bright Future Ahead In 2021
With more business seeking cloud-like IT solutions, Dell is doubling down investments around consumption-based, as-a-service offerings with its new Project Apex as well as its flagship hybrid cloud product the Dell Technologies Cloud.
Dell is also investing heavily in building out the new 5G infrastructure and edge computing solutions, which are both red-hot emerging markets in 2021.
Dell's consensus revenue estimate for its first fiscal quarter 2022, which runs from February to April 2021, is nearly $22.23 billion, which represents roughly 7 percent growth year over year.
To keep the PC innovation and client sales engine roaring in 2021, Dell launched a slew of new products at CES 2021 this week.
Mark Haranas
feredaylationston.blogspot.com
Source: https://www.crn.com/news/data-center/why-dell-s-stock-is-reaching-all-time-highs