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Dell Still Has Its Luster

May 04, 2011 12:20 AM ETDELL-OLD, AAPL, HPQ, IBM
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Dell Inc. (DELL)


 Dell Inc. designs, develops, manufactures, markets, and sells personal computers, business products (mainframes, servers, etc.), smartphones, and networking devices.  It also sells third-party software and peripherals:  everything from operating systems and office applications to printers and televisions.  Furthermore, Dell offers business solutions that include IT infrastructure, transactional services, consulting, and enterprise installation (Yahoo! Finance).  The company “serves consumers and businesses in the Americas, Europe, the Middle East, Africa, and the Asia Pacific region” with 103,300 full-time employees and sales totaling 61.5 billion in 2010 (Bloomberg).  As of last year, Dell was third globally in the shipment of unit PCs and second in the U.S. market.  The majority of DELL's sales are from PCs (55% of FY 11 (Jan.) total revenue), with 24% from Desktop PCs and 31% from Mobility [notebooks, netbooks, and tablets].” (S&P NetAdvantage)   Dell’s major competitors are Apple Inc., Hewlett-Packard Company, Toshiba Corp., International Business Machines Corp., and Acer Inc.  On April 6th Dell closed at $14.78, up 2.43% from the previous close.   The 52-week range for Dell Inc. is 11.34 – 17.52 and the closing price on April 6th  puts Dell 15.64% below its 52-week high (FINVIZ).

Key Statistics and Valuations

The 12-month price target according to Standard & Poor’s is $18.00, a 21.8% increase over the most recent closing price.  For Q4 Dell earned 53 cents per share, excluding some special cost items, which is 43% above the analysts’ expectations of 37 cents, and net income of 972 million versus 334 million a year earlier, an increase of 177%.  This outstanding performance of Q4 2010 signals strong growth momentum and an under estimation of profit potential.  Moreover, their annual net income has increased by 83.88% with an EPS growth of 84.93% year over year.  HP only had net income growth of 14.37% and an EPS growth of 17.52% during the same period, while IBM had a net income increase of 10.49% and an EPS growth 15.08%.  Dell posted the strongest growth in these key ratios among its competitors by a significant margin, which provides evidence for the trend of robust expansion of profits in the near future.  Dell Inc.’s current P/E ratio is 10.95 compared with the industry average of 17.3, Dell’s 5-year average of 15.6, and has only one other major competitor with a lower P/E ratio, HP at 10.51 (Yahoo! Finance).  Looking at these comparisons an under valuation of Dell’s current stock price becomes evident, and could be a signal for a prime buying opportunity.  On a broader scale, Dell currently has an ROA of 7.29%, an ROI of 15.59% and an ROE of 39.31%.  The ROA and ROI for Dell Inc. is inline with the industry average; however, the company’s ROE is considerably higher in comparison (Morningstar).  Dell does not pay any dividend and has free cash flow of 3.5 billion.  Both of these aspects indicate a growth approach that allows for the company to make strategic acquisitions and to weather unforeseen events in the coming months and years.

Analyst Opinion

According to Deutsche Bank, on April 5th, and Stifel Nicolaus, on February 16th, Dell Inc. is a “Buy” with a price target of $18.  Also, on February 16th Rodman & Renshaw updated their forecast from “Market Perform” to “Market Outperform” for Dell (FINVIZ).  Standard and Poor’s projects a revenue growth of 7% in 2012 and a 6% growth in 2013.  In addition, they believe that due to Dell’s expansion into emerging markets, new product lines with higher margins and pent-up demand for enterprise solutions Dell’s shares look attractively priced based on their P/E analysis (S&P NetAdvantage).  The only risk to the stock forecasted by the analysts is a weaker PC market or a loss of market share in the coming months.


We believe Dell Inc. is a key player in the technology industry and is undervalued compared to its industry peers and recommend the company for a long position.  The extremely strong Q4 represents a trend that we do not think is already priced into the shares.  This is further supported by the current P/E ratio that is lower than the industry average and the 5-year average for the company.  Moving forward, their strong expansion into the emerging markets coupled with their success with business clients domestically gives further evidence for our view of Dell being an attractive stock purchase.  Finally, because shares are priced below the 52-week high and the 12-month price target, we feel there is plenty of upward room for price appreciation in this next month.


"DELL: Summary for Dell Inc." Yahoo! Finance. Yahoo! Web. 06 Apr. 2011. <finance.yahoo.com/q?s=DELL&gt;.

"Dell Inc (DELL:US) Stock Quote & Analysis." Bloomberg. Bloomberg. Web. 06 Apr. 2011. <www.bloomberg.com/apps/quote?ticker=DELL...;.

"Dell Inc. DELL." Morningstar. Web. 6 Apr. 2011. <quote.morningstar.com/stock/s.aspx?t=DEL...;.

Smith, Thomas W. Dell Inc Stock Report. Rep. STANDARD & POOR’S NetAdvantage, 17 Feb. 2011. Web. 6 Apr. 2011.

Stock Quote DELL." FINVIZ.com - Stock Screener. Financial Visualizations. Web. 06 Apr. 2011. <finviz.com/quote.ashx?t=dell


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