On Thursday, Citi maintained its Buy rating on Dell Technologies Inc. (NYSE:DELL) stock but reduced the price target to $155 from $170. The adjustment reflects a cautiously optimistic outlook for the company's revenue, acknowledging slight improvements in the general-purpose infrastructure sector and better availability of GPUs.
Despite a better-than-expected performance in PCs during the second quarter, there is an anticipation of sub-seasonal demand moving forward, which aligns with Dell's conservative guidance for the PC market.
The report noted that while the Infrastructure Solutions Group (ISG) server margins are a point of concern, there is an expectation for margin improvement sequentially, thanks to a higher storage contribution which may be somewhat offset by an increased mix of Artificial Intelligence (AI) products. Citi has revised down its calendar year 2024 and fiscal year 2025 earnings per share (EPS) estimates, taking into account the higher contribution from AI.
Looking ahead to calendar year 2025, the analyst from Citi anticipates that the margin pressures from rising component prices and the AI mix will be partially mitigated by moderating operational expenses.
The forecast for calendar year 2026 suggests improved margins due to a broader enterprise AI adoption and an increased attachment of storage and services.
The new price target is based on a 16 times price-to-earnings (PE) ratio of forward 24 months EPS, reflecting a mid-teens EPS compound annual growth rate through calendar year 2026.
The recent decline in Dell's share price, which has seen a 25% drop, is viewed by Citi as an attractive risk/reward opportunity for investors. The firm's stance remains positive on Dell's stock, reiterating the Buy rating based on the revised estimates.
In other recent news, Dell Technologies has been at the center of several significant events. The Delaware Supreme Court upheld a $267 million legal fee awarded to law firms involved in securing a $1 billion settlement for Dell shareholders. This ruling pertains to Dell's 2018 transition back to a public company, marking a landmark decision in Delaware's legal history.
Barclays recently upgraded Dell from Underweight to Equalweight, recognizing the company's growing artificial intelligence (AI) business. Despite anticipated challenges in the personal computer and traditional server/storage markets, Barclays believes that the AI segment will drive Dell's revenue growth.
Dell has also converted over 5.6 million shares of Class B common stock into Class C common stock in an unregistered transaction. This move involved shares held by various Silver Lake entities, and it was detailed in a recent Securities and Exchange Commission filing.
At the company's annual stockholders' meeting, all seven Group I director nominees, including Michael S. Dell, were re-elected, and PricewaterhouseCoopers LLP was ratified as Dell's independent registered public accounting firm for the fiscal year ending January 31, 2025.
Lastly, the Equipment Leasing and Finance Association reported an 11% year-over-year increase in U.S. business equipment borrowings for May, with Dell Technologies being a notable contributor to this statistic. These recent developments highlight Dell's active role in various sectors, including AI and finance.
InvestingPro Insights
As Dell Technologies Inc. (NYSE:DELL) navigates the challenges and opportunities ahead, InvestingPro data and tips provide a nuanced view of the company's financial health and market position. With a market capitalization of $72.82 billion and a P/E ratio that stands at 20.51, Dell appears to be trading at a valuation that reflects its earnings potential. Notably, the company's adjusted P/E ratio for the last twelve months as of Q1 2025 is more favorable at 17.4, suggesting a potentially undervalued stock relative to near-term earnings growth.
InvestingPro Tips highlight Dell's proactive management strategy, with aggressive share buybacks and a high shareholder yield signaling confidence in the company's future. Additionally, Dell's significant return over the last week, coupled with a strong return over the last year, underscores its resilience and capacity to deliver shareholder value. These insights are particularly relevant for investors considering Citi's reduced price target and cautious optimism for Dell's revenue trajectory.
For those interested in a deeper analysis, there are additional InvestingPro Tips available that delve into Dell's industry standing, profitability forecasts, and liquidity concerns. These tips provide a comprehensive understanding of Dell's strategic positioning and financial performance, accessible through the dedicated InvestingPro platform.
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