Dell Drifting Near Two-Year Lows Ahead Of Q2 2013 Earnings

Aug.20.12 | About: Dell Inc. (DELL)

Dell (NASDAQ:DELL) is scheduled to report Q2 2013 earnings after the close of trading on Tuesday, Aug. 21. The results are typically released immediately after the closing bell with a conference call slated to follow at 5:00 p.m. ET. Dell has made great strides in recent quarters, transforming itself by expanding into the enterprise market, delivering high-end server capability in the data center, along with cloud-computing and virtualization solutions. Results from Dell will also be watched as a precursor for numbers from rival Hewlett-Packard (NYSE:HPQ) on Wednesday.

Outliers and Strategy

Key Measures:

  • Revenues tend to track close to consensus estimates. For the second quarter, Dell told investors last May it expects revenue to be in line with normal seasonality of a sequential increase of 2%-4%, or $14.69 billion to $14.98 billion.
  • Gross margin is a critical measure for Dell. Selerity extracts the non-GAAP figure. The knee-jerk reaction does not often take into account gross margins. As the results are digested, this measure typically gets close scrutiny.
  • Dell is expected to earn $0.45 per share (range is $0.43 to $0.48) on revenues of $14.66 billion, down 6.3% from the year-ago period (data sourced from Yahoo Finance).

Recent News

  • Aug. 20: Sterne Agee maintained a Neutral rating on Dell ahead of the Q2 earnings release, according to a post on The firm noted that expectations are quite low for Dell as the company contends with low cost providers such as Lenovo and Acer on one spectrum and Apple and the demand for mobile devices on the other end.
  • Aug. 14: Greenlight Capital's David Einhorn sold his entire stake in Dell (1.6 million shares) during the Q2, according to a 13-F filing.
  • July 02: Dell agreed to acquire Quest Software for $2.4 billion to expand Dell's software capabilities in systems management, security, data protection, and workspace management.
  • June 14: Deutsche Bank reiterated a Buy rating and a $17 price target on Dell, according to a post on The firm cited recent efforts to return money to shareholders, including the $0.32 annual dividend and push toward higher-margin networking solutions, overshadowing the weakness in the PC market.
  • June 12: In a meeting with analysts, Chairman and CEO Michael Dell reaffirmed the company's commitment to grow profitability and operating income while growing its enterprise solutions and services business. Dell also initiated a quarterly dividend of $0.08.

Technical Review

Dell shares recently succumbed to a two-year low of $11.39 (Aug. 2, 2012) before climbing back into a tracing channel between $12.00 and $13.00. A well-received release could drive the shares back toward $13.00 resistance, with room to run toward $15.00 -- the 200-day SMA and level preceding the Q1 2013 earnings miss. On a weak report, there is support at $12.00 -- nearly coinciding with the 20-day and 50-day SMA, followed by the aforementioned low of $11.39.

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Dell shares are near multiyear lows amid concerns over the impact of competition in the PC market from lower-cost providers, Apple's Macs, tablets, and mobile devices. But with the shares off about 17% YTD, fetching just 6.1 times forward earnings and 0.35 times sales, much of the weakness could be priced in as the company returns money to shareholders with a 2.7% yield and broadens its mix into services and networking.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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