The rise of innovative technologies and a notable influx of digital development have substantially boosted the appeal of specialized hardware solutions. However, not all tech hardware firms are yielding favorable outcomes.
Technology behemoth Apple, Inc. (AAPL), known for offering consistent growth for its investors, has undergone a volatile period. An uninspiring earnings report last month caused its stocks to tumble below the key 50-day moving average, dampening investor sentiment.
Given this backdrop, I believe fundamentally sound hardware stocks Dell Technologies Inc. (DELL), HP Inc. (HPQ), and NetApp, Inc. (NTAP) present more enticing investment opportunities than AAPL for reasons discussed throughout this article.
AAPL has been rallying this year, momentarily pushing the company to attain unprecedented heights as the world’s first $3 trillion market cap entity. However, apprehensions over tepid demand for its devices in the fourth-quarter outlook led to a dip below this notable valuation.
Further tarnishing its image, AAPL’s results for the fiscal third quarter, which ended July 1, 2023, were far from impressive. Total net sales suffered a 1.4% year-over-year decline to $81.80 billion because of a 4.4% year-over-year decline in product revenue to $60.58 billion.
iPhone sales, which account for nearly half of the company’s total revenue, plunged 2.4% year-over-year to $39.67 billion, while Mac and iPad sales were down 7.3% and 19.8% from the prior-year quarter to $6.84 billion and $5.79 billion, respectively.
Contrastingly, strength was observed in the services segment sales, experiencing an 8.2% year-over-year rise to $21.21 billion, driving the third-quarter profit. Yet, the weaker-than-anticipated iPhone sales disappointed investors. As the company looks toward the fourth quarter, it anticipates a similar deceleration in total revenue, with both Mac and iPad projections showing double-digit declines.
AAPL trades at a considerably premium valuation compared to its competitors, evident from its forward non-GAAP P/E and EV/Sales of 30.17x and 7.32x, which are 29.1% and 162.5% higher than the industry averages of 23.36x and 2.79x, respectively.
In addition to the mixed financial results and seemingly gloomy forecast, China’s recent measures to broaden iPhone usage bans among government-backed agencies and state-run companies erased $200 billion in market cap. Since AAPL heavily relies on China for its expansion narrative, an escalation in Beijing’s stringent policies could be a substantial setback for the tech giant.
However, it’s not all grim news for the company. AAPL’s trailing-12-month net income margin of 24.68% is significantly higher than the 2.03% industry average. Likewise, its trailing-12-month ROCE and ROTC of 160.09% and 40.39% are significantly higher than the industry averages of 0.62% and 2.37%, respectively.
The widespread integration of cutting-edge technologies, such as AI, the Internet of Things (IoT), Augmented and Virtual Reality (AR&VR), 5G, and machine learning by individuals and corporate entities, has significantly propelled the hardware industry. The global hardware market is projected to reach $164.21 billion by 2027, growing at a CAGR of 7.9%.
Considering the industry tailwinds and AAPL’s mixed results and outlook, let’s examine the fundamentals of three Technology – Hardware stocks, starting with the third in line.
Stock #3: NetApp, Inc. (NTAP)
NTAP provides cloud-led and data-centric services to manage and share data on-premises, and private and public clouds worldwide. It operates in two segments, Hybrid Cloud; and Public Could.
On August 24, NTAP announced an extension of its partnership with Google Cloud to deliver new levels of storage performance combined with the simplicity and flexibility of the cloud.
With the introduction of Google Cloud NetApp Volumes – now available as a fully-managed, first-party service on Google Cloud, customers can seamlessly bring business-critical workloads across both Windows and Linux environments to Google Cloud, even for the most demanding use cases like VMware and SAP migrations, all without refactoring code or redesigning processes.
The company returned $506 million to stockholders through share repurchases and cash dividends. The dividend payment of $0.50 per share to the stockholders is scheduled for October 25, 2023.
NTAP pays a $2 per share dividend annually, translating to a 2.50% yield on the current share price. Its four-year dividend yield is 3.06%. The company’s dividend payouts have grown at CAGRs of 1.4% and 14.9% over the past three and five years, respectively.
NTAP’s forward non-GAAP P/E and EV/Sales of 13.94x and 2.66x are 40.4% and 4.6% lower than the industry averages of 23.36x and 2.79x, respectively. Its forward EV/EBIT multiple of 10.66 is 42.7% lower than the industry average of 18.61.
NTAP’s trailing-12-month gross profit and net income margins of 67.06% and 19.49% are 40% and 858.5% higher than the industry averages of 47.89% and 2.03%, respectively. Its trailing-12-month asset turnover ratio of 0.66x is 6.9% higher than the 0.62x industry average.
NTAP’s net revenues stood at $1.43 billion for the fiscal first quarter that ended July 28, 2023, with its public cloud segment net revenues growing 16.7% year-over-year to $154 million. Its gross profit stood at $996 million.
Its non-GAAP net income and non-GAAP net income per share stood at $249 million and $1.15, respectively. The company’s net cash provided by operating activities surged 61.2% from the year-ago quarter to $453 million.
NTAP’s revenue and EPS are expected to increase 1.8% and 11.4% year-over-year to $1.55 billion and $1.53 for the fiscal third quarter ending January 2023. It has surpassed EPS estimates in each of the trailing four quarters.
NTAP has gained 31.30% year-to-date to close its last trading session at $78.86. Over the past three months, it gained 11.1%.
NTAP’s POWR Ratings reflect its positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
NTAP has an A grade for Quality. It is ranked #14 within the 42-stock Technology – Hardware industry.
For NTAP’s additional ratings for Growth, Value, Momentum, Stability, and Sentiment, click here.
Stock #2: HP Inc. (HPQ)
HPQ provides personal computing and other access devices, imaging and printing products, and related technologies, solutions, and services in the United States and internationally. The company operates through three segments: Personal Systems; Printing; and Corporate Investments.
Recently, HP and Miro®, the visual workspace for innovation, announced a strategic collaboration to accelerate innovation and enable seamless collaboration in digital workspaces. Through this new offer, HP customers can try out Miro’s intuitive visual workspace across critical activities, such as strategy and planning, customer-centric product design, and iterative product development.
HPQ’s dividend payment of $0.2625 per share in the third quarter resulted in cash usage of $0.3 billion. The company’s annual dividend of $1.05 per share translates to a 3.48% dividend yield at the current price level. Its four-year average dividend yield is 3.15%.
The company’s dividend payouts have grown at CAGRs of 14.6% and 13.5% over the past three and five years, respectively. Also, it has a record of 12 years of consecutive dividend growth.
HPQ’s forward non-GAAP P/E and EV/Sales of 9.08x and 0.70x are 61.1% and 74.9% lower than the industry averages of 23.36x and 2.79x, respectively. Its forward EV/EBIT multiple of 8.21 is 55.9% lower than the industry average of 18.61.
HPQ’s trailing-12-month ROTC of 30.51% is significantly higher than the 2.37% industry average. Its trailing-12-month cash from operations of $3.50 billion is significantly higher than the industry average of $60.43 million.
For the fiscal third quarter ended July 31, 2023, HPQ’s net revenue stood at $13.20 billion, while its non-GAAP operating margin came at 8.8%. The company’s non-GAAP net earnings stood at $859 million, while non-GAAP earnings per share came at $0.86.
Its cash inflow from operating activities rose 147.7% from the year-ago quarter to $976 million. Furthermore, the company’s free cash flow grew 214% year-over-year to $900 million.
HPQ’s revenue and EPS are expected to come at $53.77 billion and $3.31, respectively, for the fiscal year ending October 2023. In addition, analysts expect the company’s revenue and EPS for the fiscal year ending October 2024 to increase 2.7% and 4.6% year-over-year to $55.19 billion and $3.46, respectively.
The stock has gained 9.1% year-to-date to close the last trading session at $29.32. Over the past six months, it gained 6%.
HPQ’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
HPQ has a B grade for Growth, Value, and Quality. It is ranked #9 in the same industry.
Click here for the additional POWR Ratings for HPQ (Momentum, Stability, and Sentiment).
Stock #1: Dell Technologies Inc. (DELL)
DELL designs, develops, manufactures, markets, sells, and supports several comprehensive and integrated solutions, products, and services in the Americas, Europe, the Middle East, Asia, and internationally. The company operates through two segments: Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG).
Recently, DELL has partnered with NCS to collaborate on localizing generative AI solutions for enterprises across the Asia Pacific and Japan (APJ). Under this partnership, DELL will provide its full-stack technology developed jointly with NVIDIA.
The AI tools are targeted at businesses in Singapore, Australia, and the wider Southeast Asian region, with the partners aiming to deploy them “at scale and securely on-premise.”
Last month, DELL partnered with Denvr Dataworks, an emerging provider of high-performance cloud infrastructure, to help organizations to harness the power of generative AI (GenAI). This collaboration merges DELL’s PowerEdge XE9680 server’s security and reliability with Denvr Dataworks’ delivery of high-performance cloud computing optimized for AI.
This synergy allows organizations to spend less time configuring their environments and start producing groundbreaking AI results faster. The collaboration would be a solid foundation for customers to accelerate enterprise-wide adoption of GenAI to drive meaningful growth across their businesses.
On August 4, DELL paid the shareholders a quarterly dividend of $0.37 per common share. The company’s annual dividend of $1.48 per share translates to a 2.15% dividend yield at the current price level. Its four-year average dividend yield is 0.76%.
DELL’s forward non-GAAP P/E and EV/Sales of 11.26x and 0.77x are 51.8% and 72.3% lower than the industry averages of 23.36x and 2.79x, respectively. Its forward EV/EBIT multiple of 9.42 is 49.4% lower than the industry average of 18.61.
DELL’s trailing-12-month cash from operations of $8.10 billion is significantly higher than the industry average of $60.43 million. Its trailing-12-month asset turnover ratio of 1.07x is 74% higher than the industry average of 0.62x.
During the fiscal second quarter that ended August 4, 2023, DELL’s total net revenue stood at $22.93 billion. Its gross margin came in at $5.39 billion. Its non-GAAP operating income grew 1.3% year-over-year to $1.98 billion. Its non-GAAP net income and non-GAAP earnings per share amounted to $1.28 billion and $1.74, up 1.3% and 3.6% year-over-year, respectively.
For the same quarter, DELL’s change in cash from operating activities increased 343.9% year-over-year to $3.21 billion. Its cash, cash equivalents, and restricted cash stood at $8.65 billion, up 42% year-over-year. The company returned $525 million to shareholders in the second quarter through share repurchases and dividends.
DELL’s revenue and EPS for the fiscal year ending January 2024 are expected to come at $90.80 billion and $6.26, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock gained 81.6% over the past year to close its last trading session at $68.98. Over the past six months, the stock gained 81.5%.
DELL’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
DELL has a B grade for Growth, Value, Sentiment, and Quality. Within the Technology – Hardware industry, DELL is ranked #7.
Beyond what we’ve stated above, we have also rated the stock for Momentum and Stability. Get all ratings of DELL here.
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AAPL shares rose $0.65 (+0.37%) in premarket trading Friday. Year-to-date, AAPL has gained 37.74%, versus a 17.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...
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