Computer hardware giant Dell Technologies (DELL) suppressed Wall Street analysts' estimates for the second fiscal quarter and provided a bullish outlook for the current period.
Dell shares rose sharply (21%) on Friday (01.09.2023) after the results were released, reaching a record high after the company reported better-than-expected sales of PCs and data centre hardware. This fueled hopes for a recovery in the enterprise technology market.
Profit and sales exceeded expectations
Although fiscal revenues fell 13% to $22.9 billion in the second quarter, they still far exceeded the average projection of analysts ($20.8 billion) in a Bloomberg survey. Earnings per share of $1.74 beat the estimate of $1.14.
Biggest one-day increase
Shares rose to $68.19 on Friday (01.09.2023), marking the biggest one-day gain since December 2018, when Dell re-emerged as a publicly traded entity after five years as a private company. With Friday's jump, the stock has gained 70% this year.
Chief Financial Officer Yvonne McGill said the company is projecting sales of about $23 billion in the current quarter, ending in October, compared with analysts' estimates of $21.7 billion. For the full year, Dell raised its revenue forecast to $89.5 billion to $91.5 billion, which would represent about a 12% decline from a year earlier. Analysts on average had estimated $86.9 billion, or a 15% decline.
Dell responded to the changing market
The computer industry has had a tough year, with a sharp drop in demand as the pandemic fades. Dell has responded to the changing market by restructuring its sales organisation and cutting some 6 650 jobs earlier this year.
The results painted a better picture of the PC market than the results from HP Inc. The rival computer maker lowered its full-year forecast, saying the demand recovery will take longer than originally expected.
According to Woo Jin Ho of Bloomberg Intelligence, Dell may have fared better than PC rivals due to a higher mix of business customers and pricing discipline. His results show "growing stability in the PC market."
Growing business with AI servers
At least 13 Wall Street firms raised their price targets on Dell stock following the company's earnings report.
UBS analyst David Vogt reiterated his buy rating on Dell stock and raised his price target to 69 from 57.
In addition to building strength in PCs and servers during the quarter, Dell reported that it had a backlog of approximately $2 billion in orders for artificial intelligence servers. Management highlighted that AI servers accounted for roughly 20% of server orders in the first half of fiscal 2024.
Morgan Stanley analyst Erik Woodring maintained an Overweight rating on Dell stock and raised his price target to 70 from 56. He also called Dell his top choice in computer hardware, having replaced Apple.
