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DELL Offers Long-Term Outlook, Launches Share Buyback Program

Dell Technologies DELL provided a long-term outlook at its online Securities Analyst Meeting on Sep 23. The company expects to witness revenue CAGR of 3-4% and earnings CAGR of more than 6% through fiscal 2026.

Net income to adjusted free cash flow conversion is expected to be greater than 100% through this period. Dell targets to return 40-60% of adjusted free cash flow to shareholders through share buybacks and quarterly dividend.

In this aspect, Dell announced a share repurchase program worth $5 billion. Upon receiving approval from its board of directors post the VMware VMW spin-off, the company expects to start paying dividend, beginning first-quarter fiscal 2023. Currently, Dell expects to return $1 billion annually through dividend payment.

Dell expects the VMware spin-off to complete in early November, subject to closing conditions, including favorable private letter ruling from the IRS.

Dell shares increased 3.5% to $102.69 at close on Sep 23. Year to date, Dell shares are up 40.1% compared with the Zacks IT-Services return of 23.8%.

Dell’s Prospects Powered by Edge, Telecom & Multi-Cloud

Dell has been benefiting from strong PC sales due to solid demand for commercial PCs, driven by coronavirus-led remote-working and online-learning wave. Dell was ranked third by both Gartner and IDC among all PC vendors, trailing Lenovo LNVGY and HP HPQ in their latest second-quarter report.

Dell now envisions Multi-cloud, Edge and Telecom as its next long-term growth drivers. In its presentation the company stated that 92% of companies are using multiple clouds while 82% uses hybrid cloud environments, up from 55% from five years ago.

Edge presents a $110-BILLION market opportunity with estimated CAGR of 17% over 2020-2024. More than 50% of new IT infrastructure is expected to be deployed at Edge by 2023, which presents tremendous growth opportunity for Dell.

Telecom is a $114-BILLION market opportunity, and is expected to witness a CAGR of 2% over 2020-2024. Dell’s strong partner base presents significant growth opportunities in the expanding 5G ecosystem.

Dell’s served addressable market (including hardware, services and software) is currently worth $1.3 trillion and is expected to witness a CAGR of 6% between 2020 and 2024.

Dells’ core market, which currently comprises of PC, peripherals, server, storage and hardware deployment and support, is worth $670 billion, and is expected to witness a CAGR of 3% through 2024.

Extended markets that include IaaS, technology outsourcing, telecom networking, data management and system infrastructure software are valued at $650 billion and are expected to witness a CAGR of 8% through 2024.

Revenue Outlook in Detail

Dell expects Infrastructure Solutions Group (“ISG”) revenues to grow in fiscal 2022 and 2023, driven by expanding total addressable market.
Dell expects ISG revenues to witness a CAGR of 3-5% through 2026 driven by server market share gain, multi-cloud, telecom and Edge.

For Client Solutions Group (“CSG”) revenues are anticipated to witness a CAGR of 2-3% through 2026, driven by the work-from-anywhere trend and small & medium business growth.

Dell maintained its third-quarter fiscal 2022 guidance. The company still expects revenues to increase in the mid-to-high teens range on a year-over-year basis and experience above-normal sequential growth.

The Zacks Rank #3 (Hold) company expects strong CSG results, with revenues up in high-single digit, sequentially. ISG revenues are expected to grow low-single digit, sequentially.

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