Analysing Dell’s Turnaround
Dell Inc (Dell) beat analyst forecasts this week on the back of stronger than expected notebook sales and a lower cost-base. This has the company claiming that its turnaround plans are progressing well.
At Valuecruncher we decided to analyse what the improved performance means for the share price. We have used the Valuecruncher interactive tool for analysing the company. That means that anyone can follow the below links and amend our valuation – if you want to see the impact of our assumptions you can.
Valuing Dell
Our assumptions are revenues of US$65.5 billion in 2009 growing to US$75.0 billion in 2011. We have used an EBITDA margin of 7% in 2009 rising to 7.5% in 2010 and 2011. We have used a terminal growth rate of 4.0%. We calculated that using a present value calculation with the growth rate dropping from 7.5% in 2012 to 3.5% in 2016. We used a terminal capital expenditure number of US$900 million. We have used a WACC (discount rate) of 11.5%.
Valuecruncher Valuation Dell Inc.
Our analysis gives a share price of $23.94 which is approximately 4% above the current share price of $23.06.
Summary
The results released this week are a promising initial start on Dell’s turnaround plan. Dell shares closed on May 21 at $20.01 and have risen 15% to $23.06 by May 30. Our analysis suggests there is slightly more value available in the current share price - but only a small amount. The information released this week appears to have been efficiently absorbed into the share price. Play with our assumptions - what does your analysis say?
Tags: Dell