Deutsche Bank Reboots Dell Coverage to Buy on Upbeat Growth Outlook by Investing.com

Investing.com — Deutsche Bank resumed coverage on Dell Technologies (NYSE: ) on Thursday with a Buy rating and a $144 price target, implying a potential upside of about 14% from current levels.

The optimistic position of the company is based on three main points.

First, analysts predict that Dell will experience an acceleration in top-line growth, posting double-digit percentages in the coming quarters. This growth is expected to be driven by a combination of favorable conditions in key segments such as servers, storage and business PCs, where Dell has a leading market share.

Infrastructure Solutions Group (ISG), which accounts for about 45% of Dell’s revenue, is likely to benefit from continued AI server momentum and a recovery in traditional servers and storage solutions, Deutsche Bank notes.

“We believe DELL is well-positioned to capitalize on the next stages of AI growth/proliferation in the enterprise, given its breadth of products, breadth of services/solutions, and market footprint,” the analysts said in the note.

Second, the bank predicts double-digit growth in Dell’s profit in the coming years. This projection is supported by improved revenue and efficient management of operating expenses (opex), which is expected to offset any near-term pressure on gross margins.

Deutsche sees Dell’s earnings per share (EPS) growing at a compound annual growth rate (CAGR) of 14% between fiscal years 2025-2028, beating Dell’s own long-term targets.

Finally, Dell’s capital allocation strategy is praised for its clarity and focus on returning the majority of free cash flow (FCF) to shareholders.

Analysts expect adjusted FCF to grow from $4.8 billion in the current fiscal year (FY25E) to $7.4 billion by FY28E, with about 85% of that returned to shareholders through dividends and share buybacks.

Dell’s current dividend of $1.78 per share yields 1.5%, and share buybacks are also expected to reduce the share count by about 6% over the next three years.

“It’s worth noting that this comes against the backdrop of an already clean balance sheet, with core leverage standing at 1.4x last quarter (versus DELL’s long-term target of ~1.5x),” they concluded the analysts.

Dell shares are up more than 65% in 2024, outperforming the broader market.