Dell's Recovery and HPE's Neutral Stance: A Comprehensive Look Ahead Of Earnings Release

Dell Technologies Inc DELL will report earnings after market close on August 31. 

Citi analyst Asiya Merchant maintained a Buy rating on Dell shares.

Dell has guided revenues and earnings to decline by ~15%, and ~27%, respectively, in CY23 and FY24, and the analyst believes this to be a more de-risked scenario relative to peers. 

Demand points for PCs suggest recovery ahead though quarterly volatility is likely following stronger-than-expected 2Q. 

In ISG, declines modeled across server and storage are worse than peers, and AI-related revenues could represent some upside as Dell targets tier 2 hyper scalers, albeit with lower profitability. 

Strategic inventory purchases and PC declines pressured FCF in CY22. Still, Merchant expects FCF margins to return to normalized levels, which she believes could increase Dell's shareholder returns. 

The potential for inclusion in the S&P 500 index represents an incremental catalyst.

Hewlett Packard Enterprise Co HPE will report earnings after market close on August 29. Merchant maintained her Neutral view on HPE shares. 

HPE recently announced the departure of CFO Tarek Robbiati, reaffirming 3Q and FY23 guidance. 

HPE is guiding more modest revenue declines vs. peers, supported by the backlog, which the analyst believes lends risk to outer-year growth expectations, given competitor commentary on delayed spending in next-generation compute platforms (~40% of revenues) as spending shifts to AI. 

On the positive side, HPE's networking segment (20% of revenues) should continue to outperform, given the strength observed in enterprise networking. HPE made some significant announcements at the Discover event with recent AI wins, although further investments may be needed to scale and differentiate. 

Merchant expects diverting of cash outlay from the sale of H3C to AI offerings. The analyst remained on the sidelines until improvements. 

Price Actions: DELL shares closed lower by 0.45% at $55.80 Tuesday. HPE shares closed lower by 1.47% at $16.79.