Dell Makes Headway, But Skeptics Remain

Dell (DELL) shares were the market star today, after the company reported better than expected results for its fiscal first quarter ended April.

But the Street is still sharply split on the stock. The bulls think the turnaround at the company is just getting underway, with recent cost-cutting just beginning to pay off. But the the bears remain skeptical about how successful the turnaround plan will be, and advise steering to competitors Apple (AAPL) and Hewlett-Packard (HPQ) for exposure to the PC market.

Here’s a rundown on some of today’s commentary, starting with the bulls.

Bullish Dudes:

• Jeff Fidacaro, Merrill Lynch: He raised his rating on the stock to Buy from Hold, with a $27 price target. “Dell is beginning to benefit from the investment phase of its turnaround…expect share gains to follow.” He says that “gross margin improvement…are yet to come as the company executes around optimizing product costs and leverages global manufacturing.”
• Brent Bracelin, Pacific Crest: Maintains his Outperform rating, with price target now $30, up from $28. “We continue to favor Dell over HPQ based on our increasing confidence in the company’s turnaround and improving fundamentals due to consumer and commercial share gains,” he writes.
• Richard Gardner, Citigroup: He repeats his Buy rating, and ups his target to $30 from $27. Gardner writes that he is “confident that additional cost reductions will boost operating margin back above 6%” in the second half of 2008.
• Richard Kugele, Needham: He repeats his Buy rating, raising his target to $28 from $25. “Dell is slowly beginning to make progress with its strategic initiatives as the company generated noteworthy share gains and solid earnings results during the quarter.”
• Clay Sumner, FBR: Maintains an Outperform rating, with a $30 target. “There is much more margin improvement to come.”

Bearish Dudes:

• Matthew Kanter, W.R. Hambrecht: He rates the stock Hold. “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…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.”
• Shaw Wu, American Technology Research: He has a Neutral rating. “We do not find the risk/reward that interesting and prefer HPQ, IBM and AAPL with more attractive fundamentals and valuations,” he writes. “We remain concerned with Dell’s long-term fundamentals including limitations of its direct model, limited product set outside of PCs and smaller international exposure.”
• Doug Reid, Thomas Weisel Partners: He rates the stock Market Weight. “While we are impressed with the solid execution in the quarter, we believe Dell will be challenged to maintain cost reduction momentum,” he writes.
• Louis Miscioscia, Cowen: He has a Neutral rating. “Still much work to be done and significant risk associated with completely changing Dell’s manufacturing model, and improving on the go to market approach, but with op ex starting to decline, top-line growth should drive earnings growth and a bit of operating leverage.”

Dell today was up $1.25, or 5.73%, to $23.06 at market close.

Comments

[Relic37]

I've had three Dell computers and printers. My last one had issues that needed customer support, repeatedly. After hours on the phone my Indian rep said "I guess it is broken, my friend." My disgust with Dell (and Microsoft) has driven me into the arms of Apple. A pair of Macbooks in the family and the problems have disappeared. How many thousands of times has this same scenario played out accross the globe? Dell's best days are most likely behind them. Windows has become a liability for PCs.

[tom1234]

june 9th the WIZZZARD speaks ---are we there yet ---

[Marusa]

Bought a Dell XPS 420 at the beginning of the year and it's been great, quiet, fast and with extras not available on HP for similar price. Would definitely buy another!

[User 187558]

I had been researching computers from DELL, HP and others for 8 months. Own a Dell for 5 years past. At first I was happy with DELL. Now I won't buy one for several reasons. Service from someone I can't understand in another country. I bought a HP desktop after comparing apples to apples. The cost of a DELL comparable to the HP was ridiculous. It's hard to see unless you really break it down to the small things that DELL is taking the customer for a ride!

[John Kimmen]

DELL did not sell more Laptops they just optimized their bussiness model. With the current recession I wouldn't be that optimistic.

MAC users are on the rise stealing market share from the PC world. Thats a bad sign too.

Next week we will see for sure some profit taking drops in the stock. I would buy the stock as soon it bottoms again and sell 5% higher.

[Brewer]

How much would the shares be worth if they just went ahead and sold the company and refunded the money to the shareholders?

That would be the best move. Or, just keep selling at WalMart. Maybe include a Dell computer with every used mobile home sold in the U.S...