Interesting analysis and a possible alternative to going private. Full SEC filing here, I saw the posting initially on Barron's that also linked to an article with Reuters.
I am long DELL, however my long shares are being called away with February option expiration (short Feb 12 calls against long position).
I believe that the current buyout offer of $13.65 per share undervalues DELL. I value DELL closer to $16.50 with a floor price of $12.40. The problem of initiating a new position today is that the risk/reward is unfavorable.
The price of the deal could not be raised enough to satisfy Southeastern (or a couple of other funds that are against it) and if the deal is axed I think DELL trades back below 12.
Showing posts with label DELL. Show all posts
Showing posts with label DELL. Show all posts
Sunday, February 10, 2013
Tuesday, November 23, 2010
Comparing HPQ valuation with DELL
Hewlett Packard Company (HPQ) closed at $43.25 on November 22nd, 2010. During the past year, HPQ has traded in a range of $37.32 and $54.75.
After the close, HPQ announced their 4th Quarter and fiscal 2010 results. Since I just looked at DELL, I want to compare the results and see if DELL has a lower valuation.
Cash Equivalents 11B
Debt 22.3B
Service/Warranty Liabilities 6.7B
Net Debt 17B
Market Cap 98.1B
Enterprise Value 127.1B
Operating Cash Flow (after subtracting Stock Compensation) 11.25B
CapEx 4.15B
Free Cash Flow 7.1B
Using the conservative FCF number of 7.1B, the market is valuing HPQ at 16.3x FCF, significantly higher then DELL at 8.5x FCF. While the valuation is higher, there are some factors that are impacting FCF. Just like DELL, HPQ Account and Financing Receivables increased by over 2B, however HPQ does not break out the difference between the two items. There were some restructuring charges of approximately 1.4B due to recent acquisitions and resulting layoffs. Also, CapEx looks higher than usual due to a large number of acquisitions. Adding up all these numbers, it is possible that a more natural FCF is closer to 9B - 10B and FCF valuation would be closer to 12x.
While HPQ is certainly not cheap, it is also not so expensive that I would be interested in shorting. No position in HPQ at this time.
After the close, HPQ announced their 4th Quarter and fiscal 2010 results. Since I just looked at DELL, I want to compare the results and see if DELL has a lower valuation.
Cash Equivalents 11B
Debt 22.3B
Service/Warranty Liabilities 6.7B
Net Debt 17B
Market Cap 98.1B
Enterprise Value 127.1B
Operating Cash Flow (after subtracting Stock Compensation) 11.25B
CapEx 4.15B
Free Cash Flow 7.1B
Using the conservative FCF number of 7.1B, the market is valuing HPQ at 16.3x FCF, significantly higher then DELL at 8.5x FCF. While the valuation is higher, there are some factors that are impacting FCF. Just like DELL, HPQ Account and Financing Receivables increased by over 2B, however HPQ does not break out the difference between the two items. There were some restructuring charges of approximately 1.4B due to recent acquisitions and resulting layoffs. Also, CapEx looks higher than usual due to a large number of acquisitions. Adding up all these numbers, it is possible that a more natural FCF is closer to 9B - 10B and FCF valuation would be closer to 12x.
While HPQ is certainly not cheap, it is also not so expensive that I would be interested in shorting. No position in HPQ at this time.
Dell Inc (DELL) stock is too cheap
Dell Inc (DELL) closed at $13.96 on November 22nd, 2010. Over the past year, DELL has traded in a range of $11.34 to $17.52.
Being a value investor, I am always looking for intrinsically cheap value stocks. Many times, a particular stock is cheap for a reason (declining business, litigation issues, etc). In some instances, the market accidentally misprices a stock that still has plenty of growth. DELL is one of these stocks that is accidentally mispriced. DELL has plenty of growth while trading at a low valuation.
Let's take a look at the balance sheet from the most recent earnings results on November 18th (3rd Quarter Fiscal Year 2011).
http://i.dell.com/sites/content/corporate/secure/en/Documents/FY11_Q3_rtyu_BalanceSheet.pdf
Cash Equivalents 14B
Debt 6B
Services/Warranty Liabilities 6.5B
Net Cash 1.5B
Market Cap 26.9B
Enterprise Value 39.4B
As you can see, there is 1.5B in Net Cash on the balance sheet, or $0.78 per share.
Next is the Cash Flow section where we can look at the Trailing Twelve Months
http://i.dell.com/sites/content/corporate/secure/en/Documents/FY11_Q3_rtyu_CashFlows.pdf
Operating Cash Flow (after subtracting Stock Compensation) 3.4B
Capital Expenditures 400MM
Free Cash Flow (FCF) 3B
The market is currently valuing 3B in FCF at 8.5x (subtracting net cash). The FCF number is more conservative as Account Receivables have grown by 700MM. A large portion of this growth has been from Dell Financial Services which is no longer in partnership with CIT Group. (For more information see slide 10 and 32 linked below).
Taking a look at the growth side, DELL increased revenues by 19% YoY. The consumer business is turning the corner, breaking even this quarter after net losses previously. Even though DELL missed the initial push into retail channel (most consumers needs to touch and feel the laptop before buying), DELL is catching up to the competition. Commercial and Enterprise space are both strong with the Perot acquisition creating opportunities and synergies.
Presentation from DELL investor relations
http://i.dell.com/sites/content/corporate/secure/en/Documents/FY11_Q3_rtyu_Presentation.pdf
As far as valuation, I am looking for a valuation in the range of 10x - 12x conservative FCF for a stock price of $16.50 to $19.80.
Full Disclosure: Long DELL.
Being a value investor, I am always looking for intrinsically cheap value stocks. Many times, a particular stock is cheap for a reason (declining business, litigation issues, etc). In some instances, the market accidentally misprices a stock that still has plenty of growth. DELL is one of these stocks that is accidentally mispriced. DELL has plenty of growth while trading at a low valuation.
Let's take a look at the balance sheet from the most recent earnings results on November 18th (3rd Quarter Fiscal Year 2011).
http://i.dell.com/sites/content/corporate/secure/en/Documents/FY11_Q3_rtyu_BalanceSheet.pdf
Cash Equivalents 14B
Debt 6B
Services/Warranty Liabilities 6.5B
Net Cash 1.5B
Market Cap 26.9B
Enterprise Value 39.4B
As you can see, there is 1.5B in Net Cash on the balance sheet, or $0.78 per share.
Next is the Cash Flow section where we can look at the Trailing Twelve Months
http://i.dell.com/sites/content/corporate/secure/en/Documents/FY11_Q3_rtyu_CashFlows.pdf
Operating Cash Flow (after subtracting Stock Compensation) 3.4B
Capital Expenditures 400MM
Free Cash Flow (FCF) 3B
The market is currently valuing 3B in FCF at 8.5x (subtracting net cash). The FCF number is more conservative as Account Receivables have grown by 700MM. A large portion of this growth has been from Dell Financial Services which is no longer in partnership with CIT Group. (For more information see slide 10 and 32 linked below).
Taking a look at the growth side, DELL increased revenues by 19% YoY. The consumer business is turning the corner, breaking even this quarter after net losses previously. Even though DELL missed the initial push into retail channel (most consumers needs to touch and feel the laptop before buying), DELL is catching up to the competition. Commercial and Enterprise space are both strong with the Perot acquisition creating opportunities and synergies.
Presentation from DELL investor relations
http://i.dell.com/sites/content/corporate/secure/en/Documents/FY11_Q3_rtyu_Presentation.pdf
As far as valuation, I am looking for a valuation in the range of 10x - 12x conservative FCF for a stock price of $16.50 to $19.80.
Full Disclosure: Long DELL.
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