JPMorgan and Morgan Stanley analysts are bullish on Dell Technologies’ announcement that it is considering a spinoff of its valuable 81% interest in VMware,
Which is now worth more than Dell’s entire market value.
Dell shares (Ticker Dell) were up 14% in midday trading on Thursday, up $ 59.72, as investors bet that Dell, led by its chief executive and controlling shareholder Michael Dell, successfully managed VMware (VMW) An agreement will be reached with. By-product. VMware stock is up 1.2% to $ 141.32.
JP Morgan analyst Paul Coster added Dell to its analyst focus list and said the upside potential in the stock could be $ 80 per share. Morgan Stanley analyst Katie Huberty raised her rating at a weight equal to that of Dell overweight and raised her price target on the stock from $ 50 to $ 68.
In a customer note, he wrote that “there is a growing possibility of a VMW spin” and that Dell 1 “offers a combination of market share gains, 2) de-levering and 3) simplified ownership structure.”
There may be no spin before September 2021 due to tax reasons. VMware’s stake — approximately 338 million shares — is $ 47 billion, or $ 63, based on the closing price of the Delaware share VMware, $ 139.70. The discount limit may be reduced to the sum of the VMware spinoff, which Dell has traded after going public in late 2018.
“The possibility of executing the cost seems too high to this analyst, so we expect Dell Stock’s immediate profit, even with a one-year wait,” Coster wrote. “Next year’s catalog includes: 1) visibility improved as the global economy recovers from the Kovid-19 epidemic, 2) market-share gains released by new products, 3) debt repayment, and 4) and (near) Probability) The proposed VMW spin has an overweight and $ 68 price target.
In addition to unlocking the value of VMware, a spinoff could benefit Dell as the company would like to negotiate a one-time cash dividend by VMware payable to all shareholders. This would reduce Dell’s debt, leaving its finance unit and totals $ 40 billion.
Huberti said the one-time VMware dividend could be $ 13 billion, with Dell exceeding $ 10 billion.
Dell said on Wednesday that in the dividend scenario, it intends to achieve investment-grade debt ratings for both Dell and VMware. The $ 13 billion dividend could be on the higher side, however, given that software companies generally prefer to maintain a strong balance sheet. VMware now has a net debt of approximately $ 2 billion.
Baron’s Written favorably on Dell. Last month, we introduced a scenario in which Dell would receive a large dividend from VMware to help reduce debt as part of Spinware.
We also suggested that Dell convert its supervoting stock into ordinary shares in VMware and that Michael Dell should do the same with Dell’s supervising stock that he and Silver Lake now own.
Write Andrew Barry at [email protected]