Dell: Making Headway, But Skeptics Remain
Dell (DELL) shares are the market star today, after the company reported better than expected results for its fiscal first quarter ended April.
But the Street is still sharply split on the stock. The bulls think the turnaround at the company is just getting underway, with recent cost-cutting just beginning to pay off. But the the bears remain skeptical about how successful the turnaround plan will be, and advise steering to competitors Apple (AAPL) and Hewlett-Packared (HPQ) for exposure to the PC market.
Here’s a rundown on some of today’s commentary, starting with the bulls.
Bullish Dudes:
- Jeff Fidacaro, Merrill Lynch: He raised his rating on the stock to Buy from Hold, with a $27 price target. “Dell is beginning to benefit from the investment phase of its turnaround…expect share gains to follow.” He says that “gross margin improvement…are yet to come as the company executes around optimizing product costs and leverages global manufacturing.”
- Brent Bracelin, Pacific Crest: Maintains his Outperform rating, with price target now $30, up from $28. “We continue to favor Del over HPQ based on our increasing confidence in the company’s turnaround and improving fundamentals due to consumer and commercial share gains,” he writes.
- Richard Gardner, Citigroup: He repeats his Buy rating, and ups his target to $30 from $27. Gardner writes that he is “confident that additional cost reductions will boost operating margin back above 6%” in the second half of 2008.
- Richard Kugele, Needham: He repeats his Buy rating, raising his target to $28 from $25. “Dell is slowly beginning to make progress with its strategic initiatives as the company generated noteworthy share gains and solid earnings results during the quarter.”
- Clay Sumner, FBR: Maintains an Outperform rating, with a $30 target. “There is much more margin improvement to come.”
Bearish Dudes:
- Matthew Kanter, W.R. Hambrecht: He rates the stock Hold. “One positive quarter of growth and better EPS does not mean the challenges ahead are any less now or that drastically improving overall COGS and Opex will immediately follow…Dell still faces major challenges in executing on its disruptive IT services and global retail expansion strategies as well as on a permanent functional lower cost model while simultaneously expanding its channel partners and retail points of presence.”
- Shaw Wu, American Technology Research: He has a Neutral rating. “We do not find the risk/reward that interesting and prefer HPQ, IBM and AAPL with more attractive fundamentals and valuations,” he writes. “We remain concerned with Dell’s long-term fundamentals including limitations of its direct model, limited product set outside of PCs and smaller international exposure.”
- Doug Reid, Thomas Weisel Partners: He rates the stock Market Weight. “While we are impressed with the solid execution in the quarter, we believe Dell will be challenged to maintain cost reduction momentum,” he writes.
- Louis Miscioscia, Cowen: He has a Neutral rating. “Still much work to be done and significant risk associated with completely changing Dell’s manufacturing model, and improving on the go to market approach, but with op ex starting to decline, top-line growth should drive earnings growth and a bit of operating leverage.”
Dell today is up $1.42, or 6.5%, to $23.23.
Toni?
Besides reducing operating costs, there’s the need to increase unit sales and profits. Growth in the consumer market is a must. For long term, I think it’s still early to tell if this will happen for Dell. Their strength was with their business model of the past with corporate sales. Now that the market has changed again, it is not clear whether they have found a new business model for profitability.
Toni?
This CC was mainly obfuscation. Sure, make a profit by laying off and cutting costs. Margins will never increase at this stage of the game. Only down from here. Can’t play on Apple’s home turf: the consumer market.
Was just filling in for you. Welcome. Field is all urs :-)
Toni?
Biggest positive for me is that they acknowledge the need for a convergence device strategy:
http://sramanamitra.com/2008/05/30/dell-acknowledges-need-for-convergence-device-strategy/
Dell is just another “white box” company. Moving into consumer market via retail channel is likely to expand op ex.
HP and the others aren’t standing still!
Op income DOWN YOY despite nearly 10% rev growth?
Take out one-time items and there’s no bottom-line growth, and EPS growth came from stock buyback the company had to underwrite using borrowed money.
Yeah, what a comeback. They don’t call ‘em Dellusional investors for nothing,
is this summer a hard summer? the economic too weak, most of store and restaurant don’t need help, because business decline. most of student looking for job are very hard in this summer. plus high gasoline price and high food price ate more people’s money, most of student maybe don’t have enough money to buy high price computer(over $1000), high price mp3 and smartphone when students back to school. i think this summer will be a hard summer about dell hpq and aapl.
dell sales good, profit good too, that’s proved apple MAC didn’t get more share of market(computer), IDC survey iphone share of market decline. apple’s products are too expensive, no competitive about longterm, mp3cellphone is better than ipod, ipod sales will be decline in future, higher gasoline price would burned more people’s money, higher food price would ate more people’s money, economic too weak, students have no job in this summer. apple’s second half year will be very hard. iphone have a lot of news, but these news is not good news, because these iphone have unlock. apple estimated june quarter sales $7.2 bln, that’s continue decline quarter by quarter. RIMM sales increase quarter by quarter, DELL and HPQ sales increase quarter by quarter too, only apple decline.
In your constant quest to bash Apple did you ever try writing a complete sentence or are you really antie’s lost $86 a share call?
compare march quarter and december quarter, why only apple sales declined? MAC sales declined, IPOD sales declined and IPHONE sales declined too. but RIMM sales increased, DELL sales increased and HPQ sales increased too. apple estimated it’s june quarter sales $7.2 bln, is this continue decline?
If you read as well as you write, it would explain why you are clueless about the revenue cycle for Apple.
And DELL sales increase is probably due to stuffing the retail channel which they recently entered.
Tech Trader Daily is a blog on technology investing written from Palo Alto, California by long-time Barron's West Coast Editor Eric J. Savitz. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields.
