From InsiderScore: With shares of Dell (NASDAQ:DELL) hovering near a multi-year low, the PC maker's namesake founder has stepped up and purchased more than $70M worth of stock. Michael Dell's purchase is the largest by any corporate insider, at any company, in at least three years.
Michael Dell, the 41-year-old founder of DELL, bought 2.9195M shares at $23.99 on May 24th. As a result of the purchase, Dell now controls over 245.67M shares, or just over a 10% stake in the company he launched in 1984. Dell's holdings include about 26.45M shares held by his wife, 95.6K shares held in a retirement account, and just under 3M shares held by a trust.
Last week's purchase by Dell was his first open market buy on record, though in January, he did exercise options on 8.4M shares and held the stock. Ahead of the share exercise, Dell sold more than 62.1M shares on the open market from August 2003 through November 2004. Dell's purchase was also the first by any company insider since August 2004, and counters a trend that has seen insiders sell or exercise and sell more than $2.5B in stock since July 2003.
Shares of DELL fell to a three-year low of $23.60 on May 17th, a day before the company reported fiscal first-quarter 2007 (for the period ended May 5th, 2006) results. For Q1, DELL reported earnings of $762M, or 33 cents per share, down from $934M, or 37 cents per share, a year earlier. Sales rose a little more than 6% to $14.2B, and gross margin came in at 17.4%, down year over year from 17.8%. DELL had already lowered its earnings estimates, and the results came in below analysts' original expectations of 38 cents per share in earnings on revenue of $14.5B.
DELL's latest showing continued a trend of poor results for the company, which is facing intense competition from a reinvigorated Hewlett-Packard (NYSE:HPQ). Kevin Rollins, who replaced Michael Dell as chief executive officer two years ago, shouldered some of the blame for the company's current woes.
"The market intensified more than we understood or acknowledged," Rollins said on a conference call. "Some of our competitors were stronger than we thought, selling prices declined more rapidly in transactional space, customers are more concerned about service and support. We have laid out a strategy that would address these areas."
Analysts were mixed on the outlook for DELL following the company's earnings announcement. Credit Suisse downgraded the stock from "outperform" to "neutral" and cut its target on the name from $28 to $24, saying that "[DELL's] business model is not broken, rather the company's product, customer, and geographic mix leave it disadvantaged at this stage in the cycle, while also facing significantly improved competition." At Needham, analysts downgraded DELL from "buy" to "hold," saying that the company's "plan to restore profitable growth through more aggressive pricing and spending will translate into lower earnings than year-ago levels." Needham was positive about the company's plans, but the analysts don't believe that the stock will begin to outperform until later this year, or perhaps until fiscal 2008. Meanwhile, First Albany downgraded DELL from "buy" to "neutral" this morning saying that the IT market is shifting "towards mobility."
On the bullish side of the spectrum, Citigroup upgraded the stock from "sell" to "hold," citing valuation, and Friedman Billings also upgraded DELL from "market perform" to "outperform," raising its price target from $31 to $35. Analysts at the latter firm believe that DELL's server and storage sales should "unfreeze" in the next few weeks with the launch of a new product line and that PC sales should pick up with back-to-school season and then again following Microsoft's (NASDAQ:MSFT) launch of its new Vista operating system.
Worth Noting: DELL has been busy repurchasing stock, buying back 444M shares for $15.1B since the beginning of fiscal 2004 (February 2003). Last quarter, DELL spent $1.7B to buy back 58M shares.
DELL's latest earnings announcement included two significant announcements. For starters, the company will no longer give guidance, which is probably best considering it has either missed or, in midstream, lowered its guidance several times over the past few years. Second, the company said it will use chips from Advanced Micro Devices (NASDAQ:AMD) in some of its servers, news that sent AMD shares higher. Last week, DELL announced a partnership with Google (NASDAQ:GOOG) to include the search giant's software on new PCs. This time, the news gave DELL shares a boost.
Excluding any transaction costs, the purchase cost Dell $70,038,805.00, making it the largest open market stock purchase by any corporate insider since July 2003, when new Securities and Exchange Commission regulations required insiders to electronically file Form 4s (disclosing stock buys or sells).
Here is a list of the largest individual open market stock purchases since July 2003:
#1: Chairman Michael Dell bought $70M of Dell (DELL) stock in May 2006.
#2: Director Carlos Slim bought $40M in AT&T (NYSE:T) stock in April 2004.
#3: CEO Aubrey McClendon bought $25.3M in Chesapeake Energy (NYSE:CHK) stock in December 2005.
#4: COO Tom Ward bought $23.6M in Chesapeake Energy (CHK) stock in December 2005.
#5: Chairman Carl Lindner bought $23M in American Financial Group (NYSE:AFG) stock in December 2004.
#6: Chairman Jay Schottenstein bought $21.2M in American Eagle Outfitters (AEOS) stock in September 2005.
#7: Director William Stiritz bought $20.3M in Federated Department Stores (FD) stock in March 2006.
#8: Chairman Leonard Riggio bought $19.6M in Barnes & Noble (NYSE:BKS) stock in December 2004.
#9: CEO John Malone bought $16.5M in Discovery Holdings (NASDAQ:DISCA) stock in August 2005.
#10: Chairman Harold Simmons bought $15.2M in Titanium Metals (TIE) stock in February 2006.
Note: The transactions listed above take into account buys made on a single day, consecutive days, or within a three-day span. Buys made on behalf of private equity firms or hedge funds and filed in the name of an individual, such as Eddie Lampert's past buys of AutoZone (NYSE:AZO) for his ESL Investments, were not eligible for the list.