09.02.08 

dell: MODEL UPDATE POST FQ2; MAINTAINING HOLD RATING
We are updating our model for Dell post its FQ2 report which continued to highlight anemic to deteriorating operating profit margins despite slightly better revenue growth than both our own and consensus forecasts. We continue to believe that 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. We are maintaining our Hold recommendation. We believe that investors will demand greater clarity on the timing and size of sustainable margin improvements, better and more visible execution in consumer profitability, effective management of the channel and consumer segments against inherent conflicts with the core direct business, and more than a couple quarters of better than industry growth, and lastly, stronger proof that the Company can execute on its disruptive IT services strategy, before paying a higher multiple or expecting greater cash flow and earnings than what is already estimated. Contact Us for Full Report - PDF

05.30.08 

dell: FQ1 SHOWS BETTER GROWTH; STILL LOTS OF WORK TO DO ON MARGINS AND CONSUMER/SERVICES; MAINTAINING HOLD RATING
Dell's FQ1 results of $16.1B and $0.38 GAAP (or arguably ~$0.33 adjusted EPS if one already expected the severance, investigation, and amortization costs) came in above very low Street expectations (we believe that expectations were even lower than the $0.34 sell-side consensus), which should be enough to keep the shares higher tomorrow. However, 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. We believe that 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. With that stated, FQ1 did show a number of positive things including: 1) accelerated headcount reduction of approximately 7,000 overall, 2) excellent growth in notebooks and servers particularly, and 3) strong growth in emerging markets. Dell also disclosed global consumer margins for the first time, coming in at a meager, albeit improved 1.2% operating margin, signaling just how much work still lies ahead. Our forward estimates move higher given a new capital structure (debt issuance and more buyback assumptions) and not due to any better COGS or Opex assumptions than we had previously forecasted. We are maintaining our Hold recommendation. We believe that investors will demand greater clarity on the timing and size of sustainable margin improvements, better and more visible execution in consumer profitability, effective management of the channel and consumer segments against inherent conflicts with the core direct business, a few more consecutive quarters of better than industry growth, and lastly, stronger proof that the Company can execute on its disruptive IT services strategy, before paying a higher multiple or expecting greater cash flow and earnings than what is already estimated. Contact Us for Full Report - PDF

04.04.08 

dell: DOWNGRADING TO HOLD AFTER ANALYST DAY
We are downgrading our rating on Dell's shares from Buy to Hold after attending Dell's two-day analyst event, coming away not overly convinced that the Company has all the pieces in place to execute on its 'five-pronged' growth initiatives. Contact Us for Full Report - PDF

02.29.08 

dell: MODEL UPDATE POST FQ4; COSTS STILL WAY TOO HIGH AND RESULTS INLINE TO SLIGHTLY DISAPPOINTING ON PROGRESS MADE
Dell's FQ4 results were a little bit lower than expectations by about $250M in revenue and $0.01 miss on adjusted earnings by our calculation, with no guidance previously from the Company to set a more tangible benchmark. We have updated our model to assume: 1) higher operating expense costs than we had previously anticipated for the remainder of the year, 2) $1 billion of stock buybacks in FQ1 and FQ2 each, and 3) slightly lower gross margins given competition and increasing consumer revenue. We believe that investors will be largely unimpressed by the bloated cost structure and very slow progress, in our view, on streamlining operations, headcount, and regaining worldwide market share, despite some of the positives regarding US consumer business traction and planned buybacks. We are lowering our twelve month target price from $36 to $29, which is 16x our updated CY:08 EPS estimate ex-interest income and stock compensation expense, plus ~$4 in cash/share. We expect the shares to remain depressed until management can demonstrate better cost controls, product and service momentum, and worldwide market share gains, and we expect the analyst day on April 2nd and 3rd to be the next potential catalyst for the shares. Contact Us for Full Report - PDF

11.30.07 

dell: DELL'S UPDATED STRATEGY AND FQ3 - EASIER SAID THAN DONE; EXPECT STOCK TO LANGUISH UNTIL MORE RESULTS CAN BE ACHIEVED, BUT SHARES REPRESENT VALUE TO PATIENT INVESTORS.
Dell's FQ3 results were essentially inline, coming in slightly stronger on the top line, but missing consensus estimates by a single penny - $15.6 billion in revenue and $0.34 in pro forma EPS compared to our estimates of $15.2 billion and $0.35, respectively. Dell's FQ3 gross margin of 18.5% hit our estimate exactly, but on-going expenses knocked down the actual operating margin a bit to 5.3%. We expect that the sell-off after-hours yesterday will likely hold tomorrow as investors digest the possibility of Dell's ability to reinvent IT services and a few new material pieces of information, or lack thereof, including: 1) no details on a future new buyback/target cash balance/debt levels, 2) a five pronged growth strategy, with little financial detail and a leap of faith on the future of 'simplified' IT/service, especially in the SMB market, 3) strongly backing off the 10% net headcount reduction and previous expected savings, in our opinion (offsetting cuts with new frontline headcount and headcount from acquisitions), and 4) no medium/long term operating model, which leaves little hard benchmarks to measure performance. We continue to be optimistic about Dell's opportunities to improve the revenue, cash flow, and earnings profile from where the company is today, but we believe that the shares will take some time to appreciate into the $30s as investors will likely demand better future results and harder financial benchmarks. We do expect a meaningful buyback and recapitalization by Dell, which investors will likely cheer early next year, in our opinion, after the Board is presented with management's suggestions and ultimately approves something. However, that appears to be months away, in our view. We believe that Michael Dell and the new management team really have their work cut out for them to gain back global market share, implement a successful consumer strategy while managing the channel conflicts that management refused to fully recognize on the call, and execute its 'simplified' IT/service strategy, just to name a few of the major challenges. We are tweaking our twelve month target price from $38 to $36, which remains 20x our updated CY:08 EPS estimate ex-interest income and stock compensation expense, plus ~$6 in cash/share. We would advise patient investors to accumulate shares on near-term weakness as we still expect a meaningful buyback and new capitalization to be introduced and executed next year. This should benefit equity investors as Dell continues its new growth strategy, which we believe will likely take 2-3 years to fully implement. Contact Us for Full Report - PDF

11.27.07 

dell: UPDATING MODEL POST RESTATEMENTS; RAISING FQ3 AND FQ4 EPS ESTIMATES SLIGHTLY ON BETTER GROSS MARGIN ASSUMPTIONS
We have updated our model to reflect the restated financial filings that Dell completed back to 2004 and we are refreshing our October and January EPS estimates to reflect improved gross margin assumptions stemming mainly from better component pricing. We now estimate $0.35 in pro forma EPS on $15.22 billion in revenue for the October quarter and $0.41 in pro forma EPS on $16.13 billion in revenue for January. Dell is scheduled to report its October quarter results after the market close on Thursday November 29th and then hold its first formal analyst earnings call in approximately one year. We expect the management team to be upbeat on some progress that the company has made, to possibly announce a new share buyback program, and to talk about acquisitions made in the quarter and possibly the landscape for more acquisitions into 2008. We are also raising our target price from $34 to $38, which remains 20x our updated CY:08 EPS estimate ex-interest income and stock compensation expense, plus ~$5.50 in cash/share. Dell remains undervalued in our opinion and, with a forecast of very strong PC sales in Q3 and Q4 for the industry as a backdrop, we remain confident in our bullish outlook for Dell's shares despite the challenges ahead. Contact Us for Full Report - PDF

08.20.07 

dell: INITIATING COVERAGE WITH BUY RATING AND $34 PRICE TARGET
We are initiating coverage of the #1 US PC company, Dell, Inc., with a Buy rating and a $34 price target. Michael Dell has returned to an active role at the Company reassuming the CEO position and has brought a number of new executives in to help reinvigorate the focus, the brand, and Dell's strategy. Dell began selling its PCs at retail for the first time in June 2007, initially at Wal-Mart and Sam's club stores, as part of the change in strategy to pursue an expansion into the retail channel, a historic departure from its direct-only business model. We believe the renewed focus on the consumer will help Dell over time gain back some of the market share it lost during the past two years. We see additional opportunities for Dell to expand its storage and services segments as well. We believe Dell is just beginning its efforts to become a more nimble, more focused, business and consumer PC and services company, and we see value in its share price as it begins to regain market share and reinvigorate the focus and brand. We are initiating coverage with a Buy rating and a price target of $34, which is 20x our C2008 EPS estimate ex-interest income and stock compensation expense, plus ~$5.50 in cash/share. Contact Us for Full Report - PDF