AAPL: Better Buy: Apple vs. Dell?

While most other industries continue to bear the brunt of the coronavirus crisis, many tech corporations have emerged from the disruption and returned to full strength. Apple Inc. (AAPL) and Dell Technologies Inc. (DELL) are two such companies. They have retained their position as industry leaders and remain at the forefront of driving the global digital revolution.

With more organizations accelerating their digital transformations, leading tech companies like AAPL and DELL are reinventing their business models to deliver new digital experiences to customers. The work-and-learn-from-home culture has significantly increased the demand for consumer electronics, thereby boosting interest in cutting-edge products delivered by these mega players.

While AAPL returned 79.9% over the past year, DELL gained 52.1%. In terms of past six-month performance, AAPL is the clear winner with 54.6% gains versus DELL’s 25.1% returns. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

This week, AAPL unveiled Time to Walk, a new audio walking feature on Apple Watch for Fitness+ subscribers. The feature will invite more users to engage in a walks alongside influential people while they share thoughtful and meaningful stories, photos, and music.

Also this month, the company elected Monica Lozano, the President and CEO of College Futures Foundation, to AAPL’s board of directors. Her broad leadership experience in the public and private sectors should help AAPL continue to grow, innovate, and provide seamless experiences to all its customers.

The company has been working with FedEx (FDX) and Switch to develop exascale multi-cloud edge infrastructure services to help customers overcome performance barriers in latency-sensitive applications. This will expand DELL’s service offering and allow it to offer its customers faster access to their workloads and data.

Recent Financial Results

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In the fiscal first quarter ended December 26, 2020 DELL’s net sales increased 21.4% year-over-year to $111.44 billion, attributable primarily to an increase in international sales that accounted for 64% of the quarter’s revenue. The company’s net income grew 29.3% from the year-ago value to $28.76 billion, while its EPS increased 34.9% from the prior-year quarter to $1.70.

AAPL’s iPhone sales grew 17.2%, its Mac sales grew 21.2%, and iPad sales rose 41.1% over this period. The company’s cash flow generated from operating activities increased 27% from the year-ago value to $38.76 billion.

DELL’s revenue has increased 3% year-over-year to $23.48 billion in the third quarter ended October 31, 2020. Its net income rose 60% from the year-ago value to $881 million, while its EPS increased 64% from the prior-year quarter to $1.08. Its adjusted EBITDA grew 13% year-over-year to $3.23 billion over this period. The company’s client solutions group revenue rose 8% year-over-year to $12.29 billion.

Past and Expected Financial Performance

AAPL’s revenue and EBITDA grew at a CAGR of 6.2% and 2.7%, respectively, over the past three years. The company’s levered free cash flow grew at a CAGR of 15.1% over this period.

Analysts expect the company’s revenue to increase 27.8% in the current quarter, 16.2% in the current year and 4.8% next year. AAPL’s EPS is expected to grow 42.2% in the current quarter, 22.9% in the current year and 8.4% next year. Also, its EPS is expected to grow at a rate of 12.9% per annum over the next five years.

In comparison, , DELL’s revenue and EBITDA grew at a CAGR of 6.1% and 19.9%, respectively, over the past three years. The CAGR of its levered free cash flow has declined 9.3% over this period.

Analysts expect DELL’s revenue to increase 1.4% in the current quarter, 0.1% in the current year and 2.1% next year. Its EPS is expected to grow 6.5% in the current quarter, 1% in the current year and 0.8% next year. Also, DELL’s EPS is expected to grow at a rate of 2.78% per annum over the next five years.

Profitability

AAPL’s trailing-12-month revenue is three times DELL’s. Moreover, AAPL is more profitable with a gross profit margin of 38.2% versus DELL’s 31.4%.

In fact, AAPL’s ROE and ROA of 73.7% and 12.5%, respectively, compare favorably with DELL’s respective 52.5% and 2%.

Valuation

In terms of trailing-12-month P/E, AAPL is currently trading at 43.91x, which is much more expensive than DELL, which is currently trading at 10.43x. Though AAPL is less expensive in terms of trailing-12-month price-to-book (37.20x versus 65.19x), its forward price/earnings to growth ratio (PEG) of 3.18x is 117.8% higher than DELL’s 1.46x.

Though AAPL looks much more expensive than DELL, we think it is worth paying the premium considering AAPL’s significantly higher earnings growth potential.

POWR Ratings

Both AAPL and DELL are rated Strong Buy in our proprietary POWR Ratings system. Here are how the four components of overall POWR Rating are graded for AAPL and DELL:

AAPL has an A for Trade Grade, Buy & Hold Grade, and Industry Rank, and a B for Peer Grade. In the 54-stock Technology – Hardware industry, it is ranked #1.

DELL has an A for Trade Grade, Buy & Hold Grade and Industry Rank, and a C for Peer Grade. It is ranked #4 of 54 stocks in the same industry.

The Winner

While AAPL and DELL are good long-term investments considering their market dominance and continued expansion, AAPL appears to be a better buy based on the factors discussed here.

While DELL is the relatively cheaper option to bet on the immense growth potential of the technology industry, AAPL is a proven winner and its premium valuation is justified given its earnings growth potential.

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AAPL shares were trading at $140.17 per share on Thursday morning, down $1.89 (-1.33%). Year-to-date, AAPL has gained 5.64%, versus a 1.62% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...