by Ian Harvey
June 25, 2020
Shares of Dell Technologies rose more than 20% in after-hours trading Tuesday on a report of a possible major restructuring of its business.
And, Stock Options Made Easy “Armchair Trader” Members were well-positioned to benefit; and made 104% potential profit based on a CALL OPTIONS trade.
Dell is considering unloading its sizable stake in VMware, worth about $50 billion, but is also weighing an outright purchase of the cloud software firm according to the Wall Street Journal. Dell is the largest shareholder in VMware, with an approximately 81% stake in the company.
VMware is considered an industry leader in virtual machines for data-center servers and computer desktops, technologies that help businesses to access disparate computer systems as a single network. VMware shares were up more than 11% following the report.
In its most recent earnings report, VMware reported revenue of $2.8 billion, representing growth of 12% year-over-year "driven by broad-based strength across a diverse product portfolio," according to Dell.
Dell Technologies shares are down about 5% since the beginning of the year, while VMware is down less than 2%, as VMware seeks to grow from companies transitioning to public clouds. VMware formed a partnership with top cloud provider Amazon in 2016.
VMware's total market capitalization is about $62.5 billion.
Dell Technologies initially accumulated shares in VMware by way of its 2016 acquisition of the storage hardware firm EMC.
Yesterday trading saw Dell Technologies close the normal session up $4.09 (+8.35%) after hitting an intraday high of $54.90.
Prior to yesterday’s surge, the Dell trade had hit $4.80, just a bit short of our recommended sell point of $5.00 – 100%.
The recommended options trade for “Armchair Trader Series” Members.....
** OPTION TRADE: Buy DELL OCT 16 2020 55.000
CALL at approximately $2.50. (Max. $2.80).
The Recommended Trade…..
“Shares of Texas-based Dell Technologies Inc (NYSE: DELL) is on the rise. The PC maker announced first-quarter earnings where demand for PCs remains healthy, as COVID-19 has driven many companies to invest in remote working setups.
Revenue in the first quarter was $21.9 billion, crushing the consensus estimate of $20.8 billion in sales. That led to adjusted net income of $1.1 billion, or $1.34 per share, also well ahead of the $1.01 per share in adjusted profits that analysts were expecting. The Client Solutions Group saw sales increase, but the Infrastructure Solutions Group declined as the enterprise shifted spending toward remote work.
"Customers need essential technology now more than ever to put business continuity, remote working and learning plans into practice," COO Jeff Clarke commented in a statement. Dell says it is now the No. 2 commercial PC maker, with market share of 26%.”
Past History of Dell Technologies……
In 2018 Dell Technologies returned to public markets after going private in 2013. One option before the 2018 initial public offering was that VMware could buy Dell in a reverse merger, which did not end up happening.
Dell Technologies originally picked up the VMware shares through its $67 billion acquisition of storage hardware maker EMC, which closed in 2016. EMC closed the VMware acquisition in 2004, and in 2007 VMware went public.
“Dell is extraordinarily supportive of an independent VMware,” VMware CEO Pat Gelsinger said.
Why The Contemplated Transaction.....
Looking at Dell’s own market value, which despite a rise of its own on the news of the possible spinoff amounted to only about $40 billion, means that Dell Technologies isn’t getting full value for either its ownership of VMware or its own computing and data-storage business that took in around $80 billion of revenue in the most recent fiscal year. And it wants to remedy that.
The exact structure of a spinoff of the VMware stake is unclear and the Journal reports that talks are at a very early stage and may not go anywhere. Potentially, a spinoff would confer more direct ownership of the VMware business to shareholders than the tracking stock previously did, helping to simplify the valuation process.
An alternative option that Dell is considering is a buyout of the VMware shares it doesn’t already own, the Journal reported. But that would add to its still mammoth debt load and doesn’t really do much on its own to address the fact that Dell shareholders aren’t inclined to give the company credit for the VMware stake it already holds.
Ultimately, a buyout of the rest of VMware, followed by a spinoff of the whole thing, makes the most sense but would take a long time and is easier said than done.
Where Is Dell Technologies Stock Headed?
Is It Too Late To Jump On The Action?
Will Dell Technologies Shares Continue To Rise?
Will We Recommend Another Dell Technologies Options Trade?
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An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!