However, let's imagine that Dell's earnings hold steady over the next 5 years at $3 billion in FCF per year. Let's assume further that the company commands a 12x multiple at the end of five years. In that scenario, the company would be worth $15 billion in future earnings over five years + $36 billion in market value + $5.2 billion in present cash = $56.2 billion. Divided by the current share count of around 1.74 billion, an investment in Dell would be worth roughly $32, more than a triple its current price. Moreover, given ample room to repurchase shares at today's cheap prices, management has an opportunity to create even more shareholder value. To illustrate, imagine that they used all $5.2 billion in net cash to buy back shares at current prices. In this hypothetical scenario - and, alas, management has slowed repurchases recently, even as the share price has plummeted - the value of an investment in Dell would jump from $32 to around $42 ($15 billion + 36 billion = $51 billion/1.22 billion shares = $42).
These are significant ifs, of course. The PC may indeed die off at a faster rate than this writer predicts, which could make Dell not a value, but a value trap. For example, Kodak traded at 5x earnings all the way down to zero. But if investors' fear of rapid change turns out to be overblown, Dell may present an opportunity, albeit more of the yield than of the growth variety.
Here is a later article on the debate between Mason Hawkins of Southeastern Asset Management, and Michael Dell's group over the value of Dell.
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