By Sam Boughedda
Dell Technologies (NYSE: ) was initiated with a Hold rating and a $39 per share price target by Jefferies analysts in a note on Monday.
The analysts explained that infrastructure is currently riding a digital wave, but Dell’s PC business means they are cautious.
The analysts wrote that they see “enterprise digitization driving solid demand for computing and storage, while virtual/hybrid work should transform Dell’s PC businesses from stability to growth.” However, “recent near-term PC weakness could lead to some margin compression in CSG,” and with its valuation at a reasonable discount to peers, the company initiated a Hold rating.
“We think public cloud headwinds were real but familiar to branded vendors. However, we don’t see the Enterprise mix of market-wide server deployments getting much smaller than it is now, driven by: 1) our sensitivity analysis showing long-term Enterprise mix of server shipments should be 22.2%, which is not much lower than the 25.7% for TTM Q2’22; 2) remaining on-premises applications are becoming more difficult to lift and shift to Public Cloud; 3) many enterprises are already approaching their long-term on-premises target footprint of 25-50%; 4) increasing edge computing, low latency, and Big Data applications requiring surremises on-premises computing,” explained the analysts.
“With PC markets showing weakness recently, we expect Dell to see some margin compression within CSG. Through recent supply constraints and strong demand, most market participants have noted a benign pricing environment and historically low levels of discounting. Dell’s CSG operating margin went from 4.5% in FY’19 to 7.1% in FY’22. With easing supply constraints and impending demand weakness, we think it is logical to assume that the competitive intensity will emerge,” they added.
Dell shares are down 1% on Monday.