Dell Technologies Inc.

Dell Details
 
Well-Positioned to Repay ~$5Bn of Gross Debt in FY20:Dell Technologies (NYSE: DELL) provides customers with innovative technology and services portfolio ranging from edge to core to cloud. It has three operating segments that include Client Solutions, Enterprise Solutions Group and Dell Software Group.
 
Important Findings: The company saw the robust implementation of its Cloud that led to customer wins in the logistics, financial, transportation, retail and communications. Also, orders from VxRail increased by 82% on a yearly basis. In the reported quarter, DELL announced the accessibility of Dell EMC PowerOne autonomous infrastructure.
 
A Decent set of Numbers for the Third-Quarter Fiscal 2020: The company recently reported its third-quarter fiscal 2020 results on 26 November 2019. Non-GAAP revenues for the quarter went up 1% year on year and came in at $22.93 billion. Revenues were positively impacted by an increase in storage, commercial and VMware revenues. Earnings on a non-GAAP basis came in at $1.75 per share. Product revenues during the quarter were down 1% and came in at $17.49 billion. Services’ revenue was $5.36 billion, up 10% on y-o-y. Infrastructure Solutions Group (ISG) revenues declined 6% on pcp, primarily due to a 16% drop in revenues from servers and networking. Revenues from storage, on the other hand, went up 6.9% to $4.15 billion. Client Solutions Group (CSG) revenues increased 4.6% year on year and came in at $11.41 billion, aided by 9.4% y-o-y growth in Commercial revenues at $8.33 billion. Nonetheless, revenues from consumers were down 6.4% at $3.08 billion. Revenues from VMware stood at $2.48 billion, increased 11% on y-o-y basis, driven by strength across the portfolio.
 

Highlights of Income Statement (Source: Company Reports)
 
Operating Details: Gross profit on non-GAAP basis $7.77 billion, up 11% year over year. Gross margin during the quarter came in at 34%, up 300 basis points (bps) year over year. Adjusted EBITDA came in at $2.86 billion, which grew 17.8%. Operating expenses on a non-GAAP increased 7.9% to $5.33 billion on y-o-y basis. Operating income on a non-GAAP basis increased 18% to $2.44 billion. 
 
Cash Flow Details: Cash and cash equivalents as on 01 November 2019 stood at $8.55 billion. Long-term debt at the end of the quarter came in at $44.73 billion.DELL repaid approximately $1.1 billion of gross debt. The company remains in-line to refund roughly $5 billion of gross debt in FY20. Cash flow from operations stood at $1.82 billion at the end of the quarter.
 

Financial Metrics (Source: Company Reports)
 
What to Expect:For fiscal 2020, the company expects revenues to be in the range of $91.8-$92.5 billion. Operating income is expected between $10 billion to $10.2 billion. Further, earnings for FY2020 is forecasted to be $7.25-$7.40 per share.
 
Valuation Methodology: Price to Earnings based Valuation:

P/E Based Valuation (Source: Thomson Reuters), *NTM-Next Twelve Months

Stock Recommendation: Currently, the stock is trading below the average of its 52-week high and low of $70.55 and $42.02, respectively. As on 06 December 2019, market capitalization of the stock stands at ~$34.145 billion. The company has a leading place in the enterprise IT solutions market. Robust customer spending on infrastructure is also positive for the business of DELL. The company also stands to benefit from its majority stake in VMware. Moreover, the company’s growing portfolio, coupled with contributions for data centers is forecasted to aid its financial performance. Considering the above factors, we have valued the stock using a relative valuation method, i.e., Price to Earnings multiple and arrived at a target price of double-digit growth (in % term). Looking at the valuations, price movement and aforesaid facts, werecommend a “Buy” rating on the stock at the closed price of $47.12 per share, down by 0.46% on 6 December 2019. 
 
 
DELL Daily Technical Chart (Source: Thomson Reuters)

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