'Demand Softness': Dell Analysts React To Mixed Quarter

Dell Technologies Inc DELL shares plunged more than 12 percent on Friday after the company reported mixed first-quarter earnings.

Dell reported adjusted EPS of $1.45, exceeded consensus analyst estimates of $1.16. Revenue of $21.9 billion was up 3 percent from a year ago, but came up short of Wall Street expectations of $22.5 billion.

Several analysts have weighed in on Dell following the report. Here’s a sampling of what they’ve had to say.

Difficult Environment

Morgan Stanley analyst Katy Huberty said Dell is facing macro headwinds, but a solid commercial PC business and an upcoming storage product launch should help.

“While we see commercial PC strength continuing, server softness is worth watching and competitors may begin to pass through memory costs as they work through inventory in F2H20,” Huberty wrote in a note. She said Dell gaining 1 percent PC market share was the biggest positive in the first quarter.

UBS analyst John Roy said Dell is impressively navigating a difficult environment, but a soft second half of the year could pressure the stock.

“Uncertainty in trade/tariffs, China, Brexit, and macro seems to be combining with a digestion of very strong sales in C18 to cause some demand softness,” Roy wrote. He said revenue in three out of the four Dell segments were down year over year, highlighting the uphill battle the company is facing.

Near-Term Opportunities

Bank of America analyst Wamsi Mohan said the Client Solutions Group business was particularly impressive in the first quarter, including 6 percent revenue growth and record 7.3 percent margins.

“Strong margins in CSG were a surprise, but may not sustain as Dell eventually needs to give back price increases which resulted from pass-through of component costs,” Mohan wrote.

He said market share gains, margin expansion opportunities and competitive advantages with VMware, Inc. VMW should drive share upside in coming quarters.

Ratings And Price Targets

• Morgan Stanley has an Equal-Weight rating and $70 target.
• UBS has a Neutral rating and $67 target.
• Bank of America has a Buy rating and $70 target.

The stock traded around $58.37 per share at time of publication.

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