On Friday, TD Cowen maintained its Market Perform rating on Dell Technologies Inc. (NYSE:DELL) but raised the price target to $105 from $75, following the company's latest financial results. Dell's revenue for January 2024 was reported at $22.3 billion, with a gross margin (GM) of 24.5% and earnings per share (EPS) of $2.21. These figures surpassed the consensus estimates, which anticipated revenues of $22.2 billion, a GM of 23.6%, and EPS of $1.73.
Dell's AI server backlog increased to $2.9 billion at the end of the fourth fiscal quarter of 2024, signaling growth in the storage segment as well. The company has provided guidance for fiscal year 2025 sales to grow by approximately 5% year-over-year, a rate above their long-term compound annual growth rate (CAGR). This includes an expectation for the Infrastructure Solutions Group (ISG) to see a mid-teens percentage increase, driven by AI acceleration.
Despite the positive performance, challenges remain. The demand for personal computers is still weak, with the Client Solutions Group (CSG) expected to grow at a low single-digit percentage rate in FY25. Inflationary pressures on commodity costs and competitive challenges are also factors affecting the business.
In the ISG segment, infrastructure sales rose by 10% quarter-over-quarter to $9.3 billion, with storage sales increasing by 16% and server sales by 4%. AI server sales remained steady at $0.8 billion for the quarter, and storage sales were bolstered by some AI demand. Dell anticipates AI storage growth to accelerate from July 2024 and contribute to the ISG's optimistic outlook for the year.
The CSG segment, however, experienced a 12% year-over-year decline in sales, with a 5% sequential decrease due to continued commercial softness. Consumer sales were notably weaker, dropping by 12% from the previous quarter. Dell is expected to face margin pressures from rising costs, but the company is believed to have the pricing power to offset some of these increases. An anticipated enterprise replacement cycle later in the year could benefit the CSG business.
For the fourth fiscal quarter, the gross margin was favorably impacted by strong storage sales, although the first quarter of fiscal year 2025 is guided to have a gross margin of around 22.5%. This is attributed to a less favorable sales mix, higher commodity costs, increased pricing competition, and lower volumes. However, an improved storage mix and product price adjustments are expected to enhance the gross margin profile by year-end, despite the forecast of a roughly 100 basis points decline year-over-year for FY25.
Dell aims to return over 80% of its adjusted free cash flow to shareholders. In the fourth fiscal quarter, the company returned $261 million through dividends and spent $0.9 billion on share repurchases. Projections for FY25 include at least $2.4 billion in repurchases, with an estimated current capacity for share buybacks of about $4.9 billion.
InvestingPro Insights
Dell Technologies Inc. (NYSE:DELL) has shown a strong performance in its recent financial results, and TD Cowen's updated price target reflects optimism about the company's growth prospects. To provide further context, InvestingPro data and tips can offer additional insights into Dell's financial health and market position.
According to InvestingPro, Dell is currently trading at a low P/E ratio relative to near-term earnings growth, with a P/E ratio of 25.61. This indicates that the company's stock may be undervalued given its earnings potential. Additionally, Dell's valuation implies a strong free cash flow yield, which is a positive sign for investors looking for companies that generate significant cash relative to their share price.
On the financial front, Dell's revenue for the last twelve months as of Q3 2024 stands at $91.15 billion USD, showing a decline of 13.4% year-over-year. Despite this, the company remains a prominent player in the Technology Hardware, Storage & Peripherals industry, and analysts predict the company will be profitable this year with a gross profit margin of 23.38%.
Investors interested in a deeper analysis will find additional InvestingPro Tips for Dell, such as the company's high return over the last year and its trading near its 52-week high. For those looking to explore these insights further, there are 12 more tips available on InvestingPro, offering a comprehensive analysis of Dell's market performance and financial health. To access these tips and more, readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
These InvestingPro insights can help investors make informed decisions about Dell's stock, especially in light of the company's strategic moves and financial initiatives aimed at driving growth and shareholder value.
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