Dell's (DELL) VMWare Spinoff Unlocks SOTP Discount - RBC Capital

RBC Capital analyst Robert Muller reiterated a Sector Perform rating and $95.00 price target on Dell (NYSE: DELL) after the company officially announced its plans to spin-off its 81% equity stake in VMware following a strategic review, which results in each Dell shareholder receiving approx. 0.44 shares of VMW (worth ~$55 per Dell share). Under the terms of the deal, VMware will pay an $11.5b-$12.0b special dividend to its existing shareholders (incl. Dell); as a result, Dell will receive ~$9.3b-$9.7b which it plans to use for debt repayment, in addition to the company’s existing >$5b paydown target for FY22.

The analyst stated "We think the planned spin-off helps unlock the persistent SOTP discount that’s been embedded in Dell’s shares since it returned to the public markets in late 2018, and like that it significantly eases the path to investment grade, which should bring a more balanced capital allocation strategy ahead. We’d also highlight that Dell remains a key channel for VMware (~35% of sales) which, along with the new commercial agreement, should help protect existing innovation and GTM synergies around jointly-developed offerings."

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 $92.70 yesterday.

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