Value Hunt Continues: Dell MBO or Dividend (DELL, HPQ, AAPL)

What is interesting here is just how much “value stock” there is in Dell Inc.  We recently highlighted how both Dell and Hewlett-Packard Co.  (NYSE: HPQ) were in a chase as to which offered the most value when we did a “Deep Value Tech Review” that covered several other key tech stocks.  That value gap is still a race, and it just depends from here how the two tech giants perform against each other.

Today’s run is being credited to a Bloomberg report that Lee Ainslie of Maverick Capital Management LLC said this is what is being considered.

Dell finds itself in a strange spot from the 1990’s.  It was the greatest PC growth engine company out there. Now it is Apple Inc. (NASDAQ: AAPL) that is the hot kid on the block.  Dell has been far slower to migrate into IT services and consulting and Dell is still mainly considered a plain vanilla PC company by investors and analysts alike.  The weakness has also been a lack of leadership in the market as the PC market is now very competitive and the move into smartphones, netbooks and tablet-devices has not been dominated solely by Dell in a world of “good enough computing”  power.

If you blend the Jan-2011 and Jan-2012 fiscal earnings estimates from Thomson Reuters,  De;; hardly trades at 10-times forward earnings expectations.  The big question is whether Michael Dell can even raise the cash for a management buyout of this magnitude.  The market cap is over $27 billion and at $13.95 the stock’s 52-week range is $11.34 to $17.52.  A deal of this magnitude would require many bankers and private equity buyers would almost have to be a  key part of this deal.

There are many holders who have been ‘long and wrong’ here that own the stock well above $20.00.  Whether there are enough of them to block a  deal or demand a super-premium is another issue.  Dell traded above $25.00 as recently as mid-2008.

The reaction has Dell trading up 1.6% today and volume is over 34 million shares versus an average volume of about 23 million shares.  Chances are that if this was a real rumor on a buyout that there would be a larger gain.  As for the thought of a large dividend, we already noted how much cash is on the books at Dell in our tech value analysis.

As with all such rumors, until you see a press release from the company or until you hear that a deal is imminent then a rumor is a rumor is a rumor…

JON C. OGG