Dell Has Too Much Uncertainty, Analyst Says

Dell Technologies Inc DELL received some attention from Wall Street Tuesday, but the analyst said there are too many question marks to feel confident about the stock at its current price.

The Analyst

UBS analyst John Roy initiated coverage of Dell with a Neutral rating and $48 price target.

The Thesis

There is simply too much uncertainty surrounding competitive pressures from the cloud market, Dell’s massive debt load and the durability of Dell’s end market.

“We believe Dell is in the processes of fixing its storage business and should have success paying down debt (currently at ~4x) while gaining share in PCs, but it will be a constant battle to grow its targeted 4-6% as its end-markets are declining 0.6%,” Roy wrote in a note.

Dell returned to the public market in December roughly six years after CEO Michael Dell took the company private.

Unfortunately, Roy said the timing of the return is suspect given the global economy appears to be slowing. Despite all the concerns, the stock’s 7.1 earnings multiple likely limits the downside, and Roy estimates the market is already anticipating a 3 percent annual decline in revenue.

In the long term, Roy said public cloud may be Dell’s biggest enemy. He estimated Dell’s net negative exposure to public cloud is about 35 percent. Public cloud is expected to grow by 35 percent annually in the long term, roughly doubling its market penetration rate from 17 percent to 32 percent by 2022.

Price Action

The commentary didn’t seem to hurt Dell’s share price. The stock was up 1.6 percent at $43.48 Tuesday afternoon.

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Photo credit: Gaming Laptop, via Wikimedia Commons