Dell Stock Rises After Goldman Upgrade
Dell shares rose sharply in mid-morning trading—up 7 percent to $10.30—after a Goldman Sachs analyst upgraded the company’s stock to Buy and contemplated the future possibility of a leveraged buyout. The prospect provided eased concerns of many shareholders after the PC maker struggled to make a new mark for itself in a market dominated by tablets, smartphone and notebooks. In fact, Goldman set a new 12-month price target on Dell of $13, up from its previous $9.
Over the past two years we have urged investors to avoid ‘deep value’ technology stocks, particularly those with outsized exposure to the PC, server and printing end markets,” Goldman analysts said in the report. “Nevertheless, we believe many of our secular concerns over these market segments and Dell in particular have now become consensus. With this in mind, we now believe that Dell has become an attractive deep value play and we would be buyers of the stock.”
Goldman’s Bill Shope noted Dell’s large cash balance—$11 billion as of Nov. 2. According to Shope, that cash could prove to be useful in a private transaction as it could help a buyer pay off the debt that would certainly be taken on with any Dell purchase.
Shope also noted, however, that any private purchase of Dell would be no small undertaking. The company is currently worth $18 billion, and, therefore, any acquisition would likely require a collaboration of private investors.
We highlight that a L.B.O. transaction or levered recap need not take place to help stabilize the share price, as long as investors begin to increasingly weigh the possibility of a transaction,” Shope wrote.
