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Dell vs. HP: Which Computer Hardware Stock is a Better Buy?

The expected continuation of hybrid working arrangements and the growing digital needs of businesses should keep driving the demand for computer hardware. As such, HP (HP) and Dell Technologies (DELL) should benefit from this backdrop. But which of these two stocks is a better buy now? Read more to find out.

HP Inc. (HPQ) in Palo Alto, Calif., provides personal computing, other access devices, international imaging, printing products, and other related technologies, solutions, and services. The company operates through three segments: Personal Systems; Printing; and Corporate Investments. In comparison, Dell Technologies Inc. (DELL) in Round Rock, Tex., designs, develops, manufactures, markets, and supports information technology solutions, products, and services worldwide. It operates through two segments: Infrastructure Solutions Group and Client Solutions Group.

Despite a supply chain crisis exacerbated by Russia’s invasion of Ukraine and a global semiconductor shortage, the computer hardware industry has achieved significant gains. Furthermore, amid rapid digital transformation, the adoption of the 5G connectivity, internet of things (IoT), artificial intelligence (AI), and cloud-based services are expected to rise, fostering a growing need for computer hardware. According to Globe Newswire, the global computer hardware market is expected to grow at a 6% CAGR  by 2025. Therefore, both HPQ and DELL should benefit.

HPQ has gained 11.1% in price over the past year, while DELL has returned 8.1%. Also, HPQ’s 4.5% gains over the past month compare with DELL’s negative returns. Furthermore, HPQ is the clear winner with 26.8% gains versus DELL’s negative returns in terms of the past six months’ performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On March 28, 2022, HPQ announced an agreement to acquire Poly (POLY), a leading global provider of workplace collaboration solutions. The acquisition accelerates HP’s strategy to create a more growth-oriented portfolio, further strengthening its industry opportunity in hybrid work solutions and positioning it for long-term sustainable growth and value creation.

On Feb. 25, 2022, DELL announced that its board of directors had approved a dividend policy under which the company intends to pay quarterly cash dividends on its common stock, with an initial dividend rate of $1.32 per share per year for fiscal 2023, or approximately $1 billion in aggregate. The board has also declared an initial quarterly dividend of $0.33 per share, payable on April 29 to stockholders of record as of April 20.

Recent Financial Results

HPQ’s net revenues increased 8.8% year-over-year to $17 billion for its fiscal first quarter, ended Jan. 28, 2022. The company’s non-GAAP earnings from operations grew 11.4% year-over-year to $1.50 billion, while its non-GAAP net earnings came in at $1.20 billion, representing a 1% year-over-year increase. Also, its non-GAAP EPS was  $1.10, up 20% year-over-year.

DELL’s non-GAAP net revenues have increased 16% year-over-year to $28 billion for its fiscal fourth quarter, ended Jan. 28, 2022. The company’s adjusted EBITDA grew 3% year-over-year to $2.69 billion, while its non-GAAP net income came in at $1.39 billion, representing a 2% year-over-year increase. However, its non-GAAP EPS was  $1.72, down 2% year-over-year.

Expected Financial Performance

HPQ’s revenue and EBITDA have grown at CAGRs of 3.4% and 10.8%, respectively, over the past three years. Analysts expect HPQ’s revenue to increase 5.2% for the quarter ending April 30, 2022, and 4.9% in the current year. The company’s EPS is expected to grow 2.1% for the quarter ending April 30, 2022, and 3.9% in the current year. And its EPS is expected to grow at a 10.1% rate per annum over the next five years.

In comparison, DELL’s revenue and EBITDA have grown at CAGRs of 3.8% and 4.9%, respectively, over the past three years. The company’s revenue is expected to increase 2.6% for the quarter ending April 30, 2022, and 3.4% in the current year. Its EPS is expected to decline 34.4% for the quarter, ending April 30, 2022, but grow 8.2% in the current year. DELL’s EPS is expected to grow at a 9.4% rate per annum over the next five years.

Profitability

DELL’s trailing-12-month revenue is 1.56 times HPQ’s revenue generation. However, HPQ is more profitable, with EBIT and net income margins of 8.95% and 10.05%, respectively, compared to DELL’s 4.60% and 5.50%.

Furthermore, HPQ’s 9.85% and 71.33% respective ROA and ROTC are higher than DELL’s 2.69% and 7.82%.

Valuation

In terms of forward non-GAAP PEG, DELL is currently trading at 0.93x, which is 200% higher than HPQ’s 0.31x. However, HPQ’s 0.64x forward EV/S ratio x is 20.8% higher than DELL’s 0.53x.

POWR Ratings

HPQ has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In contrast, DELL has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

HPQ has a B grade for Quality. This is justified given HPQ's 27.95% trailing-12-month EBITDA margin, which is 107.3% higher than the 13.49 industry average. In comparison, DELL has a Quality grade of C, which is in sync with its 9.47% trailing-12-month EBITDA margin, which is 29.8% lower than the 13.49% industry average.

Among the 45 stocks in the Technology - Hardware industry, HPQ is ranked #12. In comparison, DELL is ranked #18.

Beyond what I have stated above, we have also rated the stocks for Growth, Value, Momentum, Stability, and Sentiment. Click here to view all the HPQ ratings. Also, get all the DELL ratings here.

The Winner

The computer hardware industry is expected to grow markedly because the industry helps facilitate hybrid working trends. And while both HPQ and DELL are expected to gain, we think it is better to bet on HPQ now because of its robust financials, higher profitability, and better growth prospects.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Technology - Hardware industry here.

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HPQ shares were trading at $36.26 per share on Monday morning, up $0.66 (+1.85%). Year-to-date, HPQ has declined -3.06%, versus a -3.92% rise in the benchmark S&P 500 index during the same period.



About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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