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Under the epidemic, remote teaching drove PC purchases. With the arrival of the school season, many teaching professionals purchased low-priced Chromebooks or Windows laptops. Two major PC makers, HP and Dell Technologies, benefited from this, and they paid off strong financial reports yesterday. The price of the shares rose sharply. But analysts noted that the factors that actually drive the two companies’ stock prices are not limited to this.
HP’s revenue last quarter was $ 1 billion higher than market expectations, and Dell’s EPS reported last quarter of $ 1.92, which was higher than Wall Street’s forecast of $ 1.39 Thanks to effective cost cuts, gross margins were higher than expected. Shares of HP and Dell each rose 5% on Friday.
Because many schools in the United States still maintain distance learning, the PC market demand is strong and several stores are out of stock. Dell noted that the supply shortage is partly due to the tight supply chain for monitors and microprocessors.
Seeing the good news from the epidemic, investors have also started buying shares of the PC industry chain, and the share prices of companies such as Intel, AMD, Nvidia, Seagate, Western Digital, Micron and Microsoft have uploaded.
However, both companies’ businesses face serious challenges: HP’s printing department’s revenue declines by 20% annually and consumables department’s by 19%, this is the business that concerns HP most in the market . Dell predicts that in the third quarter due to the economic recession, sales may be lower than average, and it will also face the problem of weak SME customers.
Analysts believe the reason for the higher HP and Dell share prices on Friday is not just because of the increase in PC demand or the adjustment of corporate spending, but because of the higher correlation with capital allocation.
Robert Muller, an analyst at RBC Capital, believes that Dell’s proposal to sell its software company VMware (VMW-US) is the main driver of the rise in its share price. Dell’s VMware shares are even higher than Dell’s market value.
Muller upgraded Dell’s stock rating from “Sector Perform” to “Outperform” on Friday. The target price was raised from US $ 48 to US $ 80 per share. However, analysts said the reasons for the update were not consistent. It is not based on good PC performance.
Muller noted that the value of Dell’s VMware stock is $ 62 per share, but based on the Royal Bank of Canada (RBC) price target of $ 180 for VMware, the value is about $ 80 per share. Muller believes that basically, according to the current trend of VMware, Dell shareholders will be able to get the remaining shares of the company for free.
For HP, the company’s share buyback plan was the main factor driving the share price on Friday. HP repurchased nearly $ 1 billion in the third quarter, reducing its shares by nearly 4%.
HP also expects to continue to buy back shares on a quarterly scale of $ 1 billion in the future. The company’s share buyback plan is left with $ 14 billion, which is about half the current market value.
Evercore ISI analyst Amit Daryanani added that if HP management is willing to buy back $ 1 billion worth of shares each quarter, the share price may rise. It reiterated HP’s outperforming stock rating and raised its price target from $ 21 to $ 22.
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