Q3 Preview: Can PC Turnover Be Enough to Offset Dell's (DELL) Public Sector Exposure?
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Price: $442.08 +1.68%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 0.7%
Revenue Growth %: +50.5%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 0.7%
Revenue Growth %: +50.5%
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Dell (Nasdaq: DELL) is higher today ahead of the company's third quarter earnings report, expected out after the market closes today. Shares are up 2.5% in afternoon trading.
Dell is expected to report an EPS of $0.32 on revs of $15.74 billion. Last quarter, Dell was able to pick up a win versus the consensus by reporting an adjusted EPS of $0.32 and $15.5 billion in revenues. For Q309, DELL had an EPS of $0.23 on revs of $12.9 billion, missing the consensus EPS of $0.28 and revs of $13.2 billion.
Shares of the company gained 5.8% through the quarter to $14.40 at the end of October. The stock is down 4.9% since the end of the quarter, and 5.8% since the start of 2010.
Dell's stock is going for a forward P/E of 9.5x next year's EPS estimates, compared with 8.1x for Hewlett-Packard (NYSE: HPQ) and 11.5x for International Business Machines (NYSE: IBM).
Data from Bloomberg shows that 18 analysts have a Buy rating on the shares, 18 have a Hold, and three recommend to Sell the stock. The analysts price target average is $15, with a high of $20 and a low of $12.
Analysts Through the Quarter
In August, Wells Fargo Securities resumed coverage with a Market Perform and valuation range of $13 - $15.
September had First Global downgrade from Market Perform to Underperform.
Credit Agricole upgraded from Outperform to Buy.
Morgan Stanley downgraded from Equal Weight to Underweight, also setting an $11 price target.
Gleacher & Co. started coverage with a Neutral and $12 price target.
Summary
J.P. Morgan sees an EPS of $0.33 and revs of $15.89 billion. JPM notes that investors are buying back into the shares on the prospect that gross margins will get back about 18%, which they don't believe based on "1) structural limitations in the company’s PC model and 2) product mix." The slowing PC market should have already been discounted into the stock, but JPM has concern on server and storage fronts, with HPQ and IBM reasserting themselves in the server arena, and NetApp (Nasdaq: NTAP), EMC (NYSE: EMC), and H-P in the storage market. With Cisco making cautious commentary with regards to government IT spending conditions, JPM is concerned about Dell's 26% - 27% exposure.
JPM currently has an Underweight rating with a $15.50 price target.
Janney sees the enterprise market is solid in many geographies, but revs will be offset by softness in consumer. PCs will weigh on gross margins, amid Dell taking advantage of the PC upgrade cycle (Janney's looking for a GM of 17.7%). Dell may be gaining shelf space with PC resellers, though their contacts are telling them that operating margins will remain under pressure. Janney will be looking for comments related to customer transaction data, noting that they still draw a good amount of their revenues from direct sales. Janney is looking for revs of $15.7 billion and an EPS of $0.31.
Dell Inc. is expected to release their Q311 earnings on Thursday, November 18, 2010, at approximately 4:00pm EST. Stay tuned to StreetInsider.com's EPS Central section to see our analysis of the highly-anticipated quarterly results within seconds of their release.
Dell is expected to report an EPS of $0.32 on revs of $15.74 billion. Last quarter, Dell was able to pick up a win versus the consensus by reporting an adjusted EPS of $0.32 and $15.5 billion in revenues. For Q309, DELL had an EPS of $0.23 on revs of $12.9 billion, missing the consensus EPS of $0.28 and revs of $13.2 billion.
Shares of the company gained 5.8% through the quarter to $14.40 at the end of October. The stock is down 4.9% since the end of the quarter, and 5.8% since the start of 2010.
Dell's stock is going for a forward P/E of 9.5x next year's EPS estimates, compared with 8.1x for Hewlett-Packard (NYSE: HPQ) and 11.5x for International Business Machines (NYSE: IBM).
Data from Bloomberg shows that 18 analysts have a Buy rating on the shares, 18 have a Hold, and three recommend to Sell the stock. The analysts price target average is $15, with a high of $20 and a low of $12.
Analysts Through the Quarter
In August, Wells Fargo Securities resumed coverage with a Market Perform and valuation range of $13 - $15.
September had First Global downgrade from Market Perform to Underperform.
Credit Agricole upgraded from Outperform to Buy.
Morgan Stanley downgraded from Equal Weight to Underweight, also setting an $11 price target.
Gleacher & Co. started coverage with a Neutral and $12 price target.
Summary
J.P. Morgan sees an EPS of $0.33 and revs of $15.89 billion. JPM notes that investors are buying back into the shares on the prospect that gross margins will get back about 18%, which they don't believe based on "1) structural limitations in the company’s PC model and 2) product mix." The slowing PC market should have already been discounted into the stock, but JPM has concern on server and storage fronts, with HPQ and IBM reasserting themselves in the server arena, and NetApp (Nasdaq: NTAP), EMC (NYSE: EMC), and H-P in the storage market. With Cisco making cautious commentary with regards to government IT spending conditions, JPM is concerned about Dell's 26% - 27% exposure.
JPM currently has an Underweight rating with a $15.50 price target.
Janney sees the enterprise market is solid in many geographies, but revs will be offset by softness in consumer. PCs will weigh on gross margins, amid Dell taking advantage of the PC upgrade cycle (Janney's looking for a GM of 17.7%). Dell may be gaining shelf space with PC resellers, though their contacts are telling them that operating margins will remain under pressure. Janney will be looking for comments related to customer transaction data, noting that they still draw a good amount of their revenues from direct sales. Janney is looking for revs of $15.7 billion and an EPS of $0.31.
Dell Inc. is expected to release their Q311 earnings on Thursday, November 18, 2010, at approximately 4:00pm EST. Stay tuned to StreetInsider.com's EPS Central section to see our analysis of the highly-anticipated quarterly results within seconds of their release.
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