This tech stock can rally 25% as PC market bottoms, Morgan Stanley says

Published Tue, May 2 20236:20 AM EDT

Morgan Stanley thinks the personal computer market has likely bottomed and has pegged Dell Technologies as big beneficiary. The firm upgraded shares of the tech and PC company to overweight from equal weight. It also hiked its price target to $55 per share from $45. The new target implies 25.5% upside from Monday's close. "We believe the PC market is forming a bottom, and we want to own Dell for the cyclical PC market rebound," analyst Erik Woodring said, noting that the first quarter likely marked the worst of the PC downturn. "Looking at prior PC downcycles, (2011-2013), DELL's stock bottomed one quarter ahead of the PC market bottom. Given we model PC market Y/Y declines bottoming in 1Q23, we believe the trough in DELL's stock could already be behind us," Woodring said. DELL YTD mountain Shares of Dell have gained nearly 9% from the start of the year and are up by as much over the past month. The analyst also pointed toward Dell's roadmap toward expedited shareholder returns as well as potential incorporation into the S & P 500. Woodring said that, because the company's forward guidance has already been revised toward the downside, the stock has been adequately "de-risked" and is poised to standout amongst a field of original equipment manufacturers. Meanwhile, Woodring remains optimistic that Dell management is committed to returning 40% to 60% of free cash flow back to shareholders, which was originally announced in 2021, despite the company returning 25% over the past three years. "Importantly, the combination of a higher capital return commitment and stronger [free cash flow] generation means that shareholder returns could theoretically accelerate from $4B in the last 12 months, to $5-6B (or more) annually, which has the potential to add 2-4% upside to our prior FY25 non-GAAP EPS forecast of $6.05," he said. Shares have gained nearly 9% from the start of the year. Dell will report quarterly results on May 26. — CNBC's Michael Bloom contributed to this report.