Dell (DELL) Likely to Maintain Current Path with VMWare (VMW) Stake - Morgan Stanley

Morgan Stanley analyst Katy Huberty weighed in on Dell (NYSE: DELL) following reports from the WSJ that the company is exploring its options related to its VMware (NYSE: VMW) stake, including 1) a spinoff of its stake in VMW, which is currently worth ~$50B, 2) buying in the rest of VMW making up 19% or ~$12B of VMW's current market cap, or 3) leaving the stake unchanged.

Huberty notes that just last week DELL's CFO acknowledged there are no plans to sell down the VMW stake given the 81% ownership provides a tax consolidation benefit and lower ownership could result in a significant tax liability. In addition, DELL CEO said at a conference 3 weeks ago that VMW is a "crown jewel" and creating solutions together is something that "absolutely differentiates" DELL. Further, DELL COO highlighted yesterday the cross sell and innovation synergies between DELLand VMW.

"While we are not aware of Dell's plans nor has Dell confirmed that itis exploring options for its VMware stake, Dell's recent public comments suggest the most likely path is the one that Dell is on - continuing to focus on share gains, tighter integration across Dell Technologies assets, and de-levering to 2-3xcore Debt/EBITDA ratio," Huberty comments.

The firm reiterated an Equalweight rating and $50.00 price target on DELL.

For an analyst ratings summary and ratings history on Dell click here. For more ratings news on Dell click here.

Shares of Dell closed at $55.70 yesterday.

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