Dell (DELL) Beats Q3 Views, But Lightens Outlook; Analysts Comment on Results

Dell, Inc. (Nasdaq: DELL) shares are 2.4 percent lower Wednesday following third-quarter results issued after the market close Tuesday.

Earnings for Dell were 49 cents per share, or 54 cents after adjustments, on revenue of $15.37 billion. The Street was looking for earnings of 47 cents per share on revenue of $15.65 billion.

Though earnings came in above views, Dell said sales growth for 2012 is trending toward the lower end of the 1 to 5 percent range. Operating income is expected to exceed prior guidance of 17 to 23 percent growth,.

Analysts comment on the quarter:

• Goldman Sachs is keeping a Sell rating on Dell, citing PC revenue and margin concerns stemming from the expectation for more aggressive PC pricing and increasing HDD costs from flooding in Thailand.
  
  "Nevertheless, if we see evidence that Dell is managing through the January quarter with minimal gross margin erosion, many of our concerns with the story would be alleviated," Goldman said.
  
  
• Wells Fargo said "PC business experienced the biggest shortfall (reported $8.16B versus our $8.44B, and consensus $8.6B) as the company opted not to participate in some lower margin business. This shouldn’t have been too much of a surprise given the mid quarter Gartner PC data showing some surprising HP share gains."
  
  Looking to the next quarter, Wells Fargo is modeling for gross margins to be flat, "as the higher drive prices are offset by other lower components and some structural supply chain improvements. The Windows corporate refresh still has some ample room for both desktops and laptops with another 50-60% to go."
  
  The firm rates Dell at Market Perform, with a $16-$18 valuation range.
  
  
• Deutsche Bank said gross margin upside stemmed from a benign commodity environment and favorable product mix. "With the corporate upgrade cycle still in its early stages and healthy Enterprise/SMB and Services margin contribution, we view Dell as attractive at ~4x CY12 EPS x-cash."
  
  Deutsche also said Dell's outlook looks conservative and beatable, with implied operating margin of about 7 percent. For hard disk drive shortages, Deutsche sees this as beatable given: "1) quick DELL inventory adjustments, 2) scale advantages and 3) non Thai facilities expected to ramp production."
  
  Deutsche has a Buy rating on Dell and a price target of $20.
  
  
• Collins Stewart gives a head nod to better-than-expected gross margins and EPS, but commented, "$0.03 came from lower taxes (~$0.02) & lower share count (~$0.01). Dell suggested it would continue to use 10%-30% of FCF for buy-backs. [First-half] pace was above trend at $2.2B/142M shares, so 2H pace would moderate."
  
  "What surprised us most in the qtr was such tight SG&A control. On the 2Q12 (July) call it seemed that new sales hires would drive op ex materially higher q/q but SG&A actually dropped to $2.04B vs. our est of $2.14B & down from $2.09B q/q. Without this decline, EPS would have been $0.05 lower & more in-line with consensus."

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Etsy upgraded to buy at BofA on durable growth, buyback potential
• Deutsche Bank Upgrades Target Hospitality (TH) to Buy
• Flowers Foods (FLO) Misses Q2 EPS by 3c; Offers Guidance