By Sam Boughedda
Dell Technologies (NYSE:DELL) was initiated with a Hold rating and $39 per share price target by Jefferies analysts in a note Monday.
The analysts explained that infrastructure is currently riding a digitization wave, but Dell's PC business means they are cautious.
The analysts wrote that they see "enterprise digitization driving solid demand for computing and storage, while virtual/hybrid work should transform Dell's PC businesses from stability to growth." However, "recent near-term PC weakness could lead to some margin compression in CSG," and with its valuation at a reasonable discount to peers, the firm initiated a Hold rating.
"We think public cloud headwinds have been real but well-known for branded vendors. However, we don't see the Enterprise mix of market-wide server shipments getting much smaller than it is now, driven by: 1) our sensitivity analysis showing long-term Enterprise mix of server shipments should be 22.2% which isn't much lower than the 25.7% for TTM Q2'22; 2) remaining on-premises applications are getting harder to lift and shift to Public Cloud; 3) many enterprises are already getting close to their long-term on-premises target footprint of 25-50%; 4) growing edge computing, low-latency, and Big Data applications requiring on-remises local compute," explained the analysts.
"With PC markets showing weakness recently, we expect Dell to see some margin compression within CSG. Through recent supply constraints and strong demand, most market participants noted a benign pricing environment and historically low levels of discounting. Dell's CSG operating margin went from 4.5% in FY'19 to 7.1% in FY'22. With easing supply constraints and near-term demand weakness, we think it's logical to assume the competitive intensity will turn up," they added.
Dell shares are down 1% Monday.