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Time to Buy into Dell Technologies (DELL) Post-Earnings Rally?

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Dell Technologies (DELL - Free Report)  stock has soared +32% following its strong Q4 results last Thursday which showed the IT solutions leader continues to gain an edge in its artificial intelligence offerings. The rally came as Dell is using Nvidia’s (NVDA - Free Report)  AI-powered GPUs for its servers and is starting to join in on the chip giant’s incredible success.

Correlating with higher demand and increased interest in enterprise AI, Dell’s stock has now skyrocketed +63% year to date to somewhat mirror Nvidia’s +74%. With that being said, let’s review Dell’s Q4 results, outlook, and valuaiton to see if it’s still time to buy its stock following the sharp post-earnings rally.

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Inspiring Q4 Results

Dell’s Q4 earnings of $2.20 per share easily surpassed the Zacks Consensus of $1.73 a share by 27%. Even better, Q4 EPS jumped 22% from $1.80 a share in the prior year quarter. Fourth quarter sales of $22.31 billion beat estimates by roughly 1% although this dipped from $25.03 billion in the comparative quarter. Still, Dell has now exceeded earnings expectations for eight straight quarters posting an average earnings surprise of 39.9% in its last four quarterly reports.

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Total sales for Dell’s fiscal 2024 came in at $88.43 billion down -14% from FY23. Non-GAAP operating income was $7.7 billion and $7.13 per share which fell -11% and -6% respectively. However, adding fuel to the earnings beat was Dell’s optimism surrounding FY25 and the announcement that it would be increasing its annual dividend by 20% to $1.78 per share with last year's payout at $1.48 a share.

More intriguing was what CEO Jeff Clarke stated is strong demand for the company’s AI-optimized servers with orders increasing nearly 40% sequentially and backlog nearly doubling exiting the fiscal year to $2.9 billion.

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Favorable Guidance & Outlook 

For the first quarter, Dell expects revenue to be between $21 billion to $22 billion with a midpoint of $21.5 billion representing 3% growth. For the full year fiscal 2025, Dell anticipates revenue in the range of $91 billion to $95 billion with a midpoint of $93 billion reflecting 5% growth. Dell’s guidance also lies between the current Zacks Consensus of $93.76 billion which would represent 6% growth in FY25 with FY26 sales expected to rise another 1%.

Based on Zacks estimates, Dell’s annual earnings are projected to be virtually flat in FY25 and then climb 17% in FY26 to $8.30 per share.

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Supportive Valuation  

Checking Dell’s valuation following the post-earnings spike is certainly on investors' minds. Optimistically, Dell’s stock trades at 17.5X forward earnings which is still beneath the S&P 500’s 21.5X and a considerable discount to its Zacks Computers-IT Services Industry average of 39.8X.

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In terms of price to sales, Dell’s stock remains attractive as well with a P/S ratio of 0.97X forward sales. This is nicely beneath the optimum level of less than 2X with the S&P 500 at 3.6X and its industry average at 7.5X.

Zacks Investment Research
Image Source: Zacks Investment Research

Takeaway 

At the moment Dell’s stock sports a Zacks Rank #2 (Buy). To that point, Dell’s valuation is supportive of the spike in its stock after favorable Q4 results and even suggests there could be more upside ahead as the company builds on its edge in generative AI solutions.


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