Deutsche Bank restarts Dell coverage at Buy on bullish growth outlook

Investing.com -- Deutsche Bank (ETR:DBKGn) on Thursday resumed coverage of Dell Technologies (NYSE:DELL) with a Buy rating and a price target of $144, which implies upside potential of around 14% from current levels.

The firm's bullish stance is founded on three main points.

Firstly, analysts predict Dell will experience an acceleration in top-line growth, entering double-digit percentages over the next several quarters. This growth is expected to be driven by a combination of favorable conditions in key segments such as servers, storage, and commercial PCs, where Dell holds a leading market share.

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

“We believe DELL is well positioned to capitalize on the next legs of AI growth/proliferation across enterprises, given its product scale, breadth of services/solutions and go to market footprint,” analysts said in the note.

Secondly, the bank foresees double-digit growth in Dell's bottom line in the coming years. That projection is supported by revenue improvements and effective operational expenditure (opex) management, which is expected to counterbalance any near-term pressure on gross margins.

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

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

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

Dell's current dividend of $1.78 per share offers a 1.5% yield, and share repurchases are also expected to reduce the share count by about 6% over the next three years.

“It's worth noting this is in the context of an already clean balance sheet, with core leverage sitting at 1.4x as of last quarter (vs. DELL's long-term target of ~1.5x),” analysts concluded.

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