Analyst Round-Up: Sales Misses, Margin Compression Hurt Dell (DELL) in Q1


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May 23, 2012 8:16 AM EDT Send to a Friend
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Price: $13.35 --0%

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    9 Buy, 21 Hold, 3 Sell

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Shares of Dell (Nasdaq: DELL) are down about 13 percent early Wednesday morning following a first-quarter 2013 report which saw the PC giant succumbing to fast moving rivals and lagging demand for several of its largest segments.

After the market closed Tuesday, Dell said revs dropped 4 percent to $14.42 billion while net income slipped to 43 cents per share, missing expectations calling for revs of $14.91 billion and EPS of 46 cents.

For its second quarter, Dell sees revs up 2 percent to 4 percent sequentially.

To the analysts!
  • Deutsche Bank cut its price target on Buy-rated Dell from $20 to $17. The firm cited an elongated corporate sales cycle, execution issues, competitive pressure in client, and deteriorating macro conditions on the move.

    Positives include Dell's infrastructure business growing about 2 percent and healthy SMB results, with revs up 4 percent and operating margins besting Deutsche Bank's expectations of 10 percent. In addition, Enterprise now amounts for roughly 50 percent of profits.

    Negatives include tighter-than-expected gross margins "due in part to aggressive pricing / weakness in client PCs which negatively impacted margins as DELL opted to walk away from LE / less profitable business." Dell also had miscues in sales with mismatched geographies, leading to poor execution. Deutsche thinks sales will take about one to two quarters to clear up.

    Looking ahead, Deutsche trimmed fiscal 2013 revs and EPS expectations from $62.4 billion and $2.20 to $59.5 billion and $1.85, respectively.

  • Brean Murray Caret & Co. noted gross margins were in-line with its expectations while operating margin came in 50 basis points below forecasts. Brean commented, "Not looking to sugarcoat the results but of the $0.03 miss, $0.01 was from tax (one-time) and of the other two significant factors, Dell's mis-execution in sales (which they have moved to rectify) was more meaningful than PC softness of corporate push-outs."

    The firm said component ASPs weren't an incremental tailwind in a softer market: "Dell can be left a bit exposed without crisp execution as it continues repositioning from a 50% of revenue PC company to higher growth & margin corporate IP and services."

    Brean also reduced its price target on Dell, which the firm has at Buy, from $21 to $16. Fiscal 2013 EPS moves from $2.20 to $2.05, with revs at $60.47 billion.

  • Needham maintained a Hold on the stock following the report. Analyst Richard Kugele believes "Dell’s mission to move up-market continues to be challenged by a weak macro environment and changing customer tastes. With so many headwinds preceding such a major OS release (Win 8) and concurrent product announcements (touch screen notebooks/Win 8 tablets) (Nasdaq: MSFT), we expect that the balance of F13 could see inconsistent performance."

    The analyst's FY13 EPS estimate was lowered from $2.20 to $2.05.

  • Mizuho downgraded Dell shares from Buy to Neutral and cut the stock's price target from $20 to $15.
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