Dell's Strong Positioning: Unanimous Analyst Focus on AI Opportunities and Compelling Revenue & EPS Projections

Morgan Stanley analyst Erik Woodring maintained Dell Technologies Inc DELL with an Overweight and raised the price target from $87 to $89.

Woodring highlights that DELL remains a high-conviction and Top Pick for him, as the intersection of a stabilizing core business, quickly ramping AI infrastructure opportunity, and accelerating capital return story can drive a compelling multi-year total return that is undervalued at his new CY25 (FY26) EPS of $8.11. 

Thursday's analyst day reinforced those points, and Erik raised his FY25-FY27 revenue and EPS estimates by 1-4% post-analyst day - and now sits 4-9% above consensus.

The analyst believes his estimates could still prove conservative as management's long-term growth framework is based on a "mid-cycle" starting point, not FY24's revenue and EPS trough. 

It's a bit ambiguous how DELL defines "mid-cycle." Still, if he takes the midpoint of FY23 and FY24 revenue/EPS (FY23 being the peak, FY24 being the trough) and grows revenue and EPS by 3.5% and 10% annually, he estimates that EPS could be closer to $7.70 in FY25 and $8.50 in FY26 vs. his current $7.21 and $8.11 forecasts. 

Raymond James analyst Simon Leopold had an Outperform rating on Dell with a price target of $68.

Dell's Infrastructure Solutions Group (ISG) growth target increased. At the same time, the Client Solutions Group (CSG) outlook remains unchanged, resulting in a total long-term revenue growth outlook, which remains unchanged at a 3-4% CAGR. 

With shares trading down ~2%, Leopold suspected the Street was hopeful for a more considerable AI tailwind. 

The unchanged revenue target was a bit surprising, particularly given the strong results in the most recent quarter; however, he believes a conservative approach is appropriate, given the backdrop of macro uncertainty, combined with the fact that the ultimate contributions from AI are difficult to quantify given the early stages. 

Leopold considers AI an incremental positive driver for Dell's ISG segment, even if AI crowds out some other IT spending; however, he is unconvinced that AI stimulates total growth for CSG; management's forecasts seem prudent. 

Citi analyst Asiya Merchant reiterated a Buy rating on Dell.

While investors were hoping for higher growth rates, management reiterated the long-term sale growth of 3-4%, noting potential pressures in their other reseller business. 

On the positive side, management raised the EPS growth rate to 8%+ (vs. +6% prior) on a higher target margin model in ISG, increased capital allocation to 80% (vs. prior 40-60%), and dividend growth of at least 10%+ through FY28. 

Merchant believes Dell remains well positioned to capture the TAM expansion opportunities from AI amidst stabilizing enterprise infrastructure and PC refresh cycle ahead. 

Price Action: DELL shares traded higher by 0.20% at $66.32 on the last check Friday.