Thinking Different About Dell

| About: Dell Inc. (DELL)

Bear Stearns analysts Andy Neff, Bill Hand and Ted Chung sent a note to clients this morning on Dell (NASDAQ:DELL). Key excerpts:

Thinking Different; Maintaining Estimates and Outperform Rating, Given Compelling Risk/Reward

TURNAROUND UNFOLDING. Following Dell's analyst day, we have growing confidence that Dell "looks and feels" like a turnaround with potential for significant leverage. With turnarounds, we remind investors that they don't get better overnight and can often be missed given investor focus on how a company can return to prior glory vs. how it's fixing problems and moving on. Further, investors shouldn't compare Dell today vs. Hewlett Packard (NYSE:HPQ) today, but instead focus on Dell today vs. HPQ two years ago, which highlights the potential for improvement over time.

STILL WORK AHEAD. Key steps for a turnaround are taking ownership of past issues and shifting to a 3-pronged focus on cost cuts, growth/innovation and eliminating the "bad stuff" -- and we see progress on all fronts:

COST CUTS. Dell's cost cuts are focused on its 10% (or 8,800) headcount reduction (we'd note that a 5K cut should equate to ~$0.20/sh), opex reduction, supply chain/manufacturing optimization, and shifting more to ODM model.

GROW/INNOVATE. Dell has prioritized 5 key growth areas, continues to ramp retail/indirect channels, and has renewed focus on better designed products.

STOP THE "BAD STUFF." Dell continues to focus on improved service, shortened design cycles, and tailoring products to customer needs/desires.

RISKS REMAIN. We would note that risks remain on macro slowdown (US comprises >50% of sales), opex control, competition (but we see it as Dell vs. Dell, not Dell vs. HPQ), lack of guidance, returning consumer to profitability and focus on consumer/SMB/International, which could pressure margins (but improvement should be accretive).

MAINTAINING ESTIMATES. No changes to EPS for FY09 of $1.60 and for FY10 of $1.80, but we'd note that expectations are low and progress

may not be apparent until 2H09 as cost actions take effect.

VALUATION. While Dell's turnaround is taking longer than expected to unfold, we see compelling risk/reward and we're reiterating our '08 target of $27 using a 15x P/E on CY09 EPS.