Analysts react as Dell returns to S&P 500
On Oct. 29, 2013, Dell Technologies (DELL) began what the company called "an exciting new chapter."
The computer maker was letting the world know that Chief Executive Michael Dell and the private-equity firm Silver Lake Partners had completed the acquisition of the company, which Dell had founded in 1984 when he was 19 years old.
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This was a rough time in Dell's history. Revenue in 2012 was down 7% year-over-year and earnings were falling, prompting Michael Dell to present shareholders with a $25 billion buyout that would take the company private.
"This transaction positions Dell to enter an exciting new chapter, continuing the execution of its long-term strategy and focusing on delivering best-in-class solutions to customers as a private enterprise," the company said in a statement. .
"Under a new private ownership structure, Dell will be even more flexible and entrepreneurial, allowing it to do what it does best — to serve our customers with a single-minded purpose and drive the innovations that will help them achieve their goals," Dell added.
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Dell CEO notes 'digital transformation'
The company, which had gone public in 1988, had been a member of the S&P 500 before the transaction, which was valued at about $24.9 billion.
Dell's existence as a private firm would last until Dec. 28, 2018, when the company resumed trading on the New York Stock Exchange after buying back shares that tracked the financial performance of software maker VMware.
Related: Analysts reboot Dell stock price targets ahead of earnings
“Our world is undergoing a digital transformation that will change every aspect of how we live, work and operate as a society,” Michael Dell said in a news release.
“Dell Technologies was created to be the essential infrastructure company for this digital era, and with today’s announcement, we are aligning the interests of our stakeholders to benefit from the integrated innovations and value creation from across our entire family of businesses," he said.
Dell, which marks its 40th anniversary this year, began a new chapter after S&P Dow Jones Indices said the company, along with Palantir (PLTR) and Erie Indemnity (ERIE) , would join the S&P 500 on Sept. 23.
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American Airlines (AAL) , Etsy (ETSY) and Bio-Rad Laboratories (BIO) will join the mid-cap S&P 400 index.
Dell shares are up nearly 40% year-to-date and up 50% from a year earlier.
In May, Dell introduced a series of AI-enabled PCs powered by Qualcomm processors and said that a new server supporting Nvidia’s (NVDA) latest chips will be available in the second half of the year.
However, the shift to artificial intelligence caused disruption and on Aug. 5, an estimated 12,500 Dell employees who worked in the sales division were laid off as the company invested in a new group that will focus on AI products and services.
“We are getting leaner. We’re streamlining layers of management and reprioritizing where we invest,” two Dell sales executives, Bill Scannell and John Byrne, said in a memo to employees.
The executives also said that the company was aiming to quickly boost its growth by unlocking “the value of modern IT and AI.”
Analyst sees 'multiple catalysts ahead'
A short time later, Dell beat Wall Street's second-quarter earnings expectations as revenue climbed 9% to $25 billion.
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“We are optimistic about the coming PC refresh cycle as the installed base continues to age, Windows 10 reaches end-of-life later next year and the significant advancements in AI-enabled architectures and applications continue,” Chief Operating Officer Jeffrey Clarke told analysts.
While saying that “progress will not always be linear in the early stages,” Clarke added that “we have the right AI portfolio with more to come, the right services capabilities, and we are optimizing our sales coverage to capture this once in a generation opportunity.”
"I really like our hand," he said.
After the announcement of Dell's return to the S&P 500, analysts issued research reports. These include Citi's Asiya Merchant, who said Dell shares rallied after Friday's close following the announcement, according to The Fly.
Dell shares can continue to work post the inclusion, given the "multiple other potential catalysts ahead," including recovery in general purpose infrastructure demand, a PC-refresh cycle ahead into 2025, artificial intelligence momentum, and capital returns, said the analyst, who affirmed a buy rating on the shares with a $160 price target.
Susquehanna initiated coverage of Dell with a neutral rating and $120 price target.
Dell has the scale, brand, and internal financing arm to scale AI hardware for server applications, but the investment firm sees two risk factors that have led to its below-consensus EPS estimates.
They are that the economics of AI hardware remain uncertain and the strategy for scaling AI services remains unclear, Susquehanna said.
The firm's fiscal 2026 and fiscal 2027 EPS estimates of $8.57 and $9.40 compare with consensus at $9.40 and $10.87, respectively.
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