Yahoo Finance
Dell Technologies (DELL)stock still looks undervalued, based on free cash flow analysis and analysts' revenue forecasts.
Moreover, shorting 2-week puts at a 6% out-of-the-money (i.e., lower) DELL strike price yields over 3.8%.
This article will show how this play works.
DELL closed at$392.32on Thursday, July 2, off from a June 1 peak of $465.96 (i.e.,-15.8%), after its May 28 Q1 earnings release., But it's well up from May 27, when it closed at just $305.32 (+28.5%).
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I have written two Barchart articles, showing what DELL stock could be worth (i.e., its fair market value or price target), as well as a strategy to play it: i.e., short one-month out-of-the-money puts.
For example, in a June 1 Barchart article, "Dell Stock Could Be Worth 30% More - Based on Strong AI Demand and FCF,"I showed that DELL stock could be worth $544.47 per share.
That was based on analysts' 2027 revenue forecasts on a 7.05% FCF margin, to reach a $13.0 billion FCF estimate.
Next, after applying a 3.5% FCF yield metric (and discounting the price target by 5% for the time value of money), the fair market value (FMV) was estimated to be$371.4 billion.
(Today, its market cap, according to Yahoo! Finance, is $254.79 billion.) However, since then, analysts have raised their revenue forecasts to $190.31 billion, so using a 7% FCF margin, 2027 FCF would be: After applying a higher 3.70% FCF yield (i.e., multiplying FCF by 27x) (i.e., a slightly lower metric) and discounting it by 5%, the FMV is$341.7 billion: $13.32b x 27 = $359.64bx0.95 =$341.658bFMV That's almost $87 billion higher than today's market cap of $254.79 billion, or 34% higher.
In other words, the price target (PT) is 34% higher than last week's close: $392.32 price x 1.34 =$525.71price target (PT) Analysts have raised their PTs in the last 2 weeks.
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