Why Dell’s Stock Jumped 189% In One Year

Dell Technologies stock is trading at all-time highs this week. CRN breaks down why Dell’s stock has surged 189 percent in 12 months.

Dell Technologies stock is trading at all-time highs this week by reaching $83.48 per share, up from $28.87 nearly one year ago, representing a massive 189 percent share increase over the past 12 months.

The Round Rock, Texas-based infrastructure giant’s stock price continues to gain steam for a variety of reason including a likely upcoming spin-off of VMware as well as Dell’s continued sales success over the past year despite the global COVID-19 pandemic causing many organization to pause on large IT hardware purchases.

In a huge win last week, Dell reported its best revenue year in the company’s history by generating $94.4 billion in total sales for its fiscal year 2021, which ended in February. Most notably, Dell’s Client Solutions Group – which includes Dell PCs, Chromebooks, notebooks, thin clients, printers, monitors and accompanying software and security – skyrocketed to a record $13.8 billion during its fourth fiscal quarter, up a whopping 17 percent year over year.

[Related: Top 10 Highest IT Salaries Based On Tech Skills In 2021: Dice]

“Resilient demand was driven by the fast-growing technology-enabled world where consumers can do anything from anywhere. Instead of going to work, school, entertainment, a restaurant or shopping, it all comes to us,” said Jeff Clarke, chief operating officer and vice chairman of Dell Technologies during the company’s earnings report. “The PC is the hub of this new economic model.”

Dell’s market share-leading portfolio of servers, storage and hyperconverged infrastructure generated $32.6 billion in fiscal year 2021, down 4 percent annually. However, Dell executives expect its infrastructure business to return to growth this year as economic uncertainty stemming from the global pandemic eases.

VMware Spin-Off

Another reason Dell’s stock is continuing to trend upwards is new positive signs that Dell will likely spin off its majority stake in VMware later this year, which hopes to benefit both companies. Dell currently owns an 81 percent stake in VMware stemming from Dell’s acquisition of EMC in 2016.

By spinning off its stake in VMware, Dell hopes to quickly boost its credit rating, attract new investors, help the company quickly achieve an investment grade rating, simplify its capital structure and potentially lower Dell’s debt stemming from its EMC acquisition via a special cash dividend.

Last week during VMware and Dell’s financial earnings call with media and analysts, executives from both companies said progress is being made on the potential spin-off. VMware interim CEO Zane Rowe said his company is “making progress” in evaluating the potential spin-off.

“While our special committee of independent directors continues to evaluate the spin-off, we believe it could be value-enhancing to VMware and its stockholders,” said Rowe. “I’m pleased to tell you that we are making progress on the potential spin-off of VMware from Dell.”

Dell Technologies Rob Williams, head of investor relations, echoed similar positive statements regarding the potential upcoming transaction. “Both companies continue to be engaged on key work streams [and] we are making progress in our discussion,” said Williams. “We continue to believe that a tax-free spin could drive significant shareholder value by simplifying our capital structures and enabling greater strategic flexibility while maintaining a strong commercial partnership between Dell and VMware.”

Dell does not plan to spin off its shares of VMware before September 2021 as Dell is seeking to get it to qualify as tax-free for income tax purposes.

Goldman Sachs Upgrades Dell Technologies Stock To $96

Goldman Sachs recently upgraded Dell Technologies stock from ‘neutral’ to ‘buy,’ while increasing the company’s price target to $96 per share, up from $68.

Goldman Sachs analyst Rod Hall cited Dell’s rapid paydown of debt and above-consensus gross margin forecasts.

“In terms of near-term fundamentals, we factor PC and enterprise demand risk into our model and our revenue forecasts are slightly below consensus as a result. However, this is more than offset by above consensus gross margin forecasts driven by a detailed mix model,” noted Hall. “Separately, while we acknowledge that Dell’s ongoing strategic discussions could lead to a range of outcomes, we note that a potential VMware spin-off and associated special cash dividend could unlock material further value for Dell shareholders.”

Paying Down Debt

In fiscal year 2021, Dell paid down $5.5 billion in core debt. The company said last week it plans to pay down at least another $5 billion this year.

As of February, Dell’s core debt stands at around $29 billion. Dell’s total debt principal balance – which includes $10.3 billion in Dell Financial Services related debt and a subsidiary debt of $4.8 billion -- is $48.5 billion.

“We will continue to prioritize debt pay-down as part of our capital allocation strategy, and we are confident in our path toward an investment-grade rating,” Dell Technologies Chief Financial Officer Tom Sweet said during the company’s earnings report last week.

Dell Expects Another Sales Record Year In 2021

Dell Technologies recently provided revenue insight for its current fiscal year 2022 which runs from now until February 2022.

The company is expecting total revenue to grow in the low to mid-single digits in fiscal year 2022, which would break its annual sales record again.

“For fiscal year 2022, while the exact timing is fluid, we expect the global economy to improve as we move through the year. This should benefit [Dell’s] Infrastructure Solutions Group and VMware as the year progresses, particularly as our customers return to the office,” said Dell’s Sweet. “We expect CSG strength to continue through the first half with tougher compares in the second half.”

Dell’s stock hit a low of $28.87 in March 2020 as the deadly COVID-19 virus began spreading in the U.S. Dell Technologies stock is currently trading at $83.27 per share as of Tuesday afternoon, with a total market cap of $62.6 billion.