Dell rises to record high after analyst calls stock ‘compellingly inexpensive’

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Shares of Dell Technologies Inc closed at a record high on Monday after one analyst termed it “compellingly cheap.”

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Bernstein analyst Tony Sacconaghi upgrades Dell Dell,
+3.26%
The stock performed Monday to outperform the market, raising its target price from $63 to $72 and writing off several potential catalysts for the personal computer maker. The stock closed the session up 3.3% at $59.88, nearly a dollar higher than the previous record close, which stood at $58.91 on December 7, 2021.

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While Sacconaghi sees general signs of slowdown in Chromebooks, he notes that Dell has a better business mix than some of its rivals in the personal-computer segment. The company is less exposed to Chromebooks and by its estimates gets about 75% of its revenue from corporate business, while it puts the mix of the broader industry at closer to 50%.

In Sacconaghi’s view, Dell has three “structural advantages” over many of its rivals, including its “broader solution set” that allows for better cross-selling. In addition, the company’s scale allows for “greater purchase theft,” and its distribution model allows for greater flexibility in pricing.

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Sacconaghi sees potential in Dell’s storage business, which has been “relatively flat” in recent quarters but could capitalize on “an elevated backlog and a mainframe cycle.” This part of the business is of significant interest to investors, he said, noting that it accounts for about 16% of revenue but about 30% of profit.

He calculates that Dell has about $6 billion to $8 billion in additional cash, which the company could use for a “more aggressive” approach to paying down debt or buying back shares. Doing so could increase the company’s fiscal 2023 earnings per share by an additional $1 per math.

Then there is the possibility that Dell could eliminate its supervoting share category. Although he noted that chief executive Michael Dell had shared at the Bernstein conference that the company had no plans to liquidate supervising shares, Sacconaghi still sees this as a possibility—and argues that such The change could give more leverage to Dell’s stock, along with investors and index providers. ,

“It is possible that some investors may discount Dell because of the company’s dual-class stock structure, which gives Michael Dell majority power and prevents Dell from joining the major indexes,” he wrote.

As the S&P 500 Index SPX, Dell stock is up 53.3% over the past year,
-0.14%
has increased by 22.3%.

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