Dell Technologies DELL stock has surged by a remarkable 32% post its robust Q4 results last Thursday, highlighting the IT solutions leader’s continued dominance in the realm of artificial intelligence. This upward trajectory coincides with Dell leveraging Nvidia’s NVDA AI-powered GPUs for its servers, aligning itself with the chip giant’s remarkable success.
Corresponding with escalating demand and heightened interest in enterprise AI, Dell’s stock has catapulted by a staggering 63% year to date, closely mirroring Nvidia’s 74% surge. As the dust settles, let’s scrutinize Dell’s Q4 performance, future outlook, and valuation to determine if now is the opportune moment to delve into its stock post the significant post-earnings rally.
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Prominent Q4 Performance
Dell’s Q4 earnings of $2.20 per share significantly surpassed the Zacks Consensus of $1.73 a share by 27%. Notably, Q4 EPS surged by 22% from the previous year, ascending from $1.80 per share. Despite Q4 sales of $22.31 billion slightly missing estimates by approximately 1%, marking a decline from $25.03 billion in the corresponding quarter, Dell has now surpassed earning projections for eight consecutive quarters, registering an average earnings surprise of 39.9% in its last four quarterly disclosures.
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Dell’s total sales for fiscal 2024 amounted to $88.43 billion, reflecting a 14% dip from FY23. Non-GAAP operating income stood at $7.7 billion, with earnings per share at $7.13, indicating a decline of 11% and 6%, respectively. Nonetheless, Dell buoyed the earnings beat with optimistic projections for FY25, and the announcement of a 20% surge in its annual dividend to $1.78 per share, compared to the previous year’s payout of $1.48 per share.
CEO Jeff Clarke highlighted a robust demand for the company’s AI-optimized servers, with orders soaring by nearly 40% sequentially, and backlog almost doubling, closing the fiscal year at $2.9 billion.
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Positive Forecast & Perspective
The first quarter is expected to see Dell’s revenue ranging between $21 billion to $22 billion, with a midpoint of $21.5 billion, reflecting a 3% uptick. Looking towards the full year of fiscal 2025, Dell anticipates revenue in the bracket of $91 billion to $95 billion, centered around $93 billion, signifying a 5% growth trajectory. Dell’s guidance aligns closely with the current Zacks Consensus of $93.76 billion for FY25, pointing towards a 6% revenue growth, while FY26 showcases an additional 1% sales escalation.
Based on Zacks estimates, Dell’s annual earnings display a projected stability for FY25, followed by a 17% surge in FY26 to $8.30 per share.
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Supportive Valuation Indicators
Following the resounding post-earnings upsurge, it comes as no surprise that investor attention is turning towards evaluating Dell’s valuation. Encouragingly, Dell’s stock is currently trading at 17.5X forward earnings, positioning it below the S&P 500’s 21.5X multiple, and at a substantial discount compared to the Zacks Computers-IT Services Industry average of 39.8X.
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In terms of price-to-sales ratio, Dell’s stock maintains an appealing stance, boasting a P/S ratio of 0.97X forward sales. This level rests comfortably below the optimal threshold of less than 2X, with the S&P 500 at 3.6X and its industry average standing at 7.5X.
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Final Thought
Currently sporting a Zacks Rank #2 (Buy), the valuation of Dell suggests further upside post the positive Q4 outcomes. It hints towards the potential for more growth as the company capitalizes on its competitive advantage in generative AI solutions.