Why Dell Has More Room to Run
April 09, 2021 at 14:58 PM EDT
An improving economy typically leads to outperformance in hardware stocks. That is especially true this year as IT spending is forecasted to soar. This trend should help drive Dell Technologies (DELL) to new heights.
As the economy improves, many companies are feeling more comfortable increasing their spending. Hardware stocks, especially, have seen their shares soar since November in anticipation of increased IT spending. But the best is still yet to come.
Hardware stocks typically outperform the market in economic recoveries. Still, due to lower than usual spending last year, in 2021 hardware stocks are forecasted to skyrocket as survey after survey of IT leaders indicate a massive increase in spending.
In particular, one stock has seen its price targets shoot up over the past couple of days due to this trend. Dell Technologies Inc. (DELL), due to its PC solutions and hybrid-cloud offerings, is expected to see massive share gains this year. But before I get into evaluating the company, let's recap the week.
Stocks soared on Monday after a blowout jobs report Friday. The U.S. economy added 916,000 jobs in March, which beat the expected number of 675,000. The report confirms the accelerating economic recovery, as states reopen and fiscal stimulus supports businesses to rehire workers. Both the S&P 500 and the Dow Jones Industrial Average closed at record highs.
The market retreated on Tuesday after setting records the day before. Stocks finished mixed on Wednesday as investors digested the release of the Federal Reserve's meeting minutes. High growth stocks plummeted as longer-dated interest rates rose. On Thursday, the market was higher, with the S&P 500 index hitting a new high as the 10-year Treasury yield dropped to 1.63% after a higher-than-expected jobless claims number.
Stocks finished higher again today, even as inflation readings topped forecasts. The increases in global producer prices pushed bond yields in early trading but eased off by the afternoon. Investors, though, seem more concerned with the upcoming corporate earnings-reporting season, which kicks off next week.
Technology stocks were the talk of the town last year, and while cyclical names have been riding high this year, I see one technology industry rising above the fray to deliver market-beating gains. Hardware stocks should continue their rise due to the continued recovery in enterprise technology spending.
As I mentioned early, hardware stocks have historically outperformed the market in economic recoveries, but this year should see even more significant gains. According to Gartner, global IT spending is expected to rise 8.4% from last year. In CIO's 20th annual State of the CIO, 82% of CIOs (Chief Information Officers) say they have implemented new technologies, and 37% say that they increased their IT budgets.
In another survey, Evercore ISI's quarterly enterprise technology spending survey found 80% of IT leaders saying they expect to see their IT spending rise. This is all excellent news for hardware companies, especially DELL, which saw its price target raised by four analysts over the past few days, which is why I am highlighting the company below.
Dell Technologies Inc. (DELL)
Most investors know DELL from their computer products, but its 2016 acquisition of EMC has made the firm one of the pre-eminent vendors of IT infrastructure products and services. The stock has seen its target prices rise by Morgan Stanley, Deutsche Bank, Bank of America Securities, and Evercore over the past few days.
The company reported strong fourth-quarter results in February, beating analyst estimates in both earnings and revenue. The quarter's strength was a reflection of the secular trend toward digitalization, remote working, and cloud-based infrastructure. As a supplier with an end-to-end IT infrastructure portfolio, the company has substantial upselling opportunities.
The company is poised to be a leader in the hybrid cloud space through its cloud-based offerings, hardware strengths, and VMware. Even if DELL spins off VMware, which it has proposed, its valuation could soar based on the sum of its parts. The company should see continued demand for notebooks and higher-margin gaming PCs. DELL recently launched the first AMD Alienware gaming laptop edition in over a decade.
The stock has an overall grade of A, which translates into a Strong Buy Rating in our POWR Ratings service. DELL has a Growth Grade of A as well, due to analyst growth forecasts. Revenues are expected to increase 12.8% year over year in the current quarter, while earnings are forecasted to jump 16.4% over the same period. The company also has a Value Grade of A. Even with strong price performance since early February, DELL's stock only has a forward P/E of 11.03.
We also grade DELL based on Momentum, Stability, Sentiment, and Quality. You can find those grades here. DELL is ranked #1 in the B-rated Technology – Hardware industry. You can find other top stocks in that industry by clicking here.
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DELL shares . Year-to-date, DELL has gained 28.09%, versus a 10.42% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.Why Dell Has More Room to Run appeared first on StockNews.com