The world’s second largest PC-maker Dell Inc.’s (DELL) board of directors has authorized the repurchase of shares up to an additional value of roughly $5.0 billion. The company still has $2.16 billion available under the existing buyback plan. Following the news, Dell’s shares rose 2.29% in after-market trade.
Dell stated that the company’s efforts to streamline operations and reduce costs have enabled it to generate very strong operating cash flows. Based on this performance, Dell expects to spend more on research and development, capital expenditures and acquisitions, at the same devoting more cash for stock repurchases.
During the recently concluded second quarter, Dell spent $1.1 billion on share repurchases, taking the first half total to roughly $1.6 billion.
Cash flow from operations soared to $2.4 billion from $465.0 million reported in the year-ago quarter. The company ended the quarter with $15.1 billion in cash and short-term investments versus $14.5 billion in the previous quarter.
We remain encouraged by Dell’s strong cash position and its ability to service its long-term debts. Moreover, continuous share buybacks will inspire investor loyalty through higher returns from the stock.
Dell reported decent second quarter results, with both revenue and earnings per share increasing year over year. New products, a stronger services business and opportunities in the Electronic Medical Record sector are positives for the company. On the other hand, the company lowered its revenue forecast for the upcoming fiscal year ending January. The uncertain demand environment induced the company to lower the previously projected numbers.
Dell benefited from the expanded customer base that resulted from the Perot acquisition. But stiff competition from Hewlett-Packard Company (HPQ) and Acer raise our concerns.
Currently, Dell has a Zacks #3 Rank, which equates to a short-term Hold recommendation.
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