This is a harsh take imo. It's literally a tech company so, of course, most assets will be intangible. And the best way of measuring the strength of such assets is to check the earning power of the company- which is strong. And the cash flows are even better because Dell 's model means that suppliers effectively finance their business. Also, close to 21k patents must have some value, right?
Further, you can adjust equity by adding back dividends, repurchases and subtracting stock, capital and AOCL. Dell are always aggressively increasing their dividend, buying back debt and common stock... they've slowed down on their buyback in recent qtrs from $900m/qtr last year to about $400m this year. And for good reason. The stock isn't "undervalued" by classic metrics. Nor is it overvalued, though.
The DFS debt of $9.8b can't be included with the core debt. It's not correct to include that within the operations of the business. (Worth noting that annual interest charges at current interest rates average about $1.5b- I've been wrong about leverage in the past, but this seems far more reasonable.).
The "legacy" business may scare others. But, in my eyes, whatever problems Dell do have, Michael Dell will sort them out with the best interests of shareholders in mind. I'm willing to pay a Michael Dell premium.
If you split the two businesses up - ISG and CSG - and do a "sum of the parts" valuation you also realise that $54b isn't really that "expensive."
ISG, the growth function, does about $30b/annum in revenue in a conservative year and makes an operating profit of about $4b.
CSG does about $50b in annual rev and makes an operating profit of about the same.
So, combined operating profits for these two functions yields about 15% (against market price).
Of course, we haven't accounted for SBC, amortisation and corporate expenses (you still have to).
Maybe I'm totally off and have totally misjudged the situation. We'll see. |
