On Monday, Evercore ISI reiterated its confidence in Dell Technologies Inc (NYSE:DELL), maintaining an Outperform rating and a $165.00 price target on the company's shares. The firm's stance remains positive despite Dell's recent first-quarter earnings report, which prompted a notable decline in the company's stock price. The analyst from Evercore ISI highlighted that investor concerns following the report may be overlooking the strengths in Dell's performance, such as increased server revenues related to artificial intelligence (AI) and signs of a recovery in the PC market.
The analyst pointed out that while Dell experienced a downturn in its storage business margins, this should be viewed as a temporary setback rather than a fundamental issue. The margin contraction in the Infrastructure Solutions Group (ISG) was primarily due to execution challenges and mix headwinds within the storage division, including a significant transaction involving AI storage hardware with no accompanying software sales. Additionally, typical first-quarter seasonality and weaker sales in North America contributed to the margin decline.
Despite these challenges, Evercore ISI believes that Dell's storage margins have the potential to improve significantly by fiscal year 2025. The firm's analysis suggests that if Dell can address the current headwinds and align its storage margins with those of its competitors, there could be a substantial upside to earnings per share (EPS). The analyst's "back of the envelope math" indicates that storage margins, which dropped to around 7% in the April quarter, could recover to mid-to-high teens, aligning with the margins of competitors like Pure Storage (NYSE:PSTG) and NetApp (NASDAQ:NTAP).
The report also discusses the potential for Dell's storage margins to expand, factoring in seasonal trends, internal improvements, and market dynamics. Should these factors play out favorably, the firm estimates an approximate 5% EPS upside to their current fiscal year 2025 EPS estimates for Dell. In a more optimistic scenario, where Dell achieves storage margins comparable to EMC (NYSE:EMC_old)'s, the upside could exceed 10%.
In other recent news, Dell Technologies has been the focus of several analyst adjustments. Citi maintained its bullish stance on Dell, reiterating its Buy rating and steady price target of $170.00, citing the company's potential in the artificial intelligence (AI) sector. Dell's management expressed optimism about its AI market share and anticipates a return to targeted profit margins of 11-14% due to increased revenue from seasonal storage demand.
On the other hand, Barclays (LON:BARC) adjusted its outlook on Dell, reducing the price target slightly to $97 from the previous $98, while maintaining an underweight rating on the stock. This change was due to concerns about the gross margin associated with Dell's AI servers, which Barclays suggested is lower than ideal.
TD Cowen also updated its outlook on Dell, raising the price target to $155 from the previous $105 while maintaining a Hold rating on the stock. This adjustment reflects growing optimism about the company's potential in the AI sector, despite concerns about potential gross margin compression due to inflationary costs and a dilutive AI product mix.
InvestingPro Insights
In light of Evercore ISI's continued endorsement of Dell Technologies Inc, recent data from InvestingPro provides additional context for investors. Dell's aggressive share buyback strategy and a high shareholder yield underscore management's confidence in the company's value. Moreover, the company's low P/E ratio relative to near-term earnings growth suggests that the stock may be undervalized at its current levels.
InvestingPro Data reveals that Dell's market cap stands at a robust $92.34 billion, with a P/E ratio of 22.33 for the last twelve months as of Q1 2023. Despite a revenue decline of 7.58% during the same period, Dell has experienced a large price uptick over the last six months, with a 90.77% return. Additionally, analysts predict the company will maintain profitability this year, which could further bolster investor confidence.
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