Wells Fargo Initiates Bullish Coverage On Dell

Dell Technologies Inc DELL shares have been under pressure in the past three months, but one Wall Street analyst said Monday near-term headwinds will ultimately subside, clearing the way for long-term margin and share price upside.

The Analyst

Wells Fargo analyst Aaron Rakers initiated coverage of Dell with an Outperform rating and $68 price target.

The Thesis

Rakers said Dell’s core business valuation along with its opportunity to grow margins over time creates a potential path to $11 per share in EPS.

“While we see more downside risk than upside potential to estimates near term, e.g., toughening comparisons, the pass-through of deflationary component costs (most notably in servers), and a maturing Windows 10 commercial PC upgrade cycle, we view Dell as presenting a long-term attractive risk/reward ratio given the company’s broad-based portfolio/software-to-hardware depth favorably positioning Dell to capitalize on the long-term architectural shift to software-defined hybrid multicloud,” Rakers wrote in the note.

Rakers is bullish on Dell’s ability to leverage its supply chain and optimize its portfolio and product mix. He also said Dell can gain market share in the on-premise servers, enterprise storage and commercial PC markets.

Rakers said Dell’s complex structure makes the company relatively difficult for the market to value given its ownership stakes in other companies. However, Wells Fargo’s sum-of-the-parts valuation of Dell and all its assets yields at least $70 per share.

Price Action

Dell shares were trading flat at $55.50 on Monday afternoon.

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