Q1 Preview: Most Analysts Expect Upside for Dell (DELL), But...

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Following a strong performance is never easy; when the performance is in a competitive business like personal and enterprise computing, the challenge gets even tougher.

Dell, Inc. (Nasdaq: DELL) investors might be confident into earnings, expected out after the market close Tuesday, despite disappointing second-quarter results from Hewlett-Packard (NYSE: HPQ) this morning.

Notably, for Dell investors, H-P's Enterprise Servers, Storage and Networking (ESSN) revs popped 15 percent year-over-year. This could be a delayed reaction for H-P, considering Dell realized a 16 percent jump in Servers and Networking revs last quarter, paving the way for a big beat from the Round Rock, TX-based PC and server maker.

On PC sales, Goldman Sachs believes that moderating server unit trends and PC demand weakness will factor into results. JPMorgan also sees weakness in PCs, though the server-spending cycle appears to be strong. Elsewhere on the Street, Well Fargo said, "We think the fairly obvious weak consumer PC results will be offset by healthy demand trends in servers, storage, and currency gains."

Deusche Bank is modeling for operating margin of about 2 percent in Dell's consumer segment, saying "despite better profitability, we believe Dell's growth in Consumer (particularly LE NBs) is being challenged and cannibalized by the iPad."

Goldman expects some downside for Dell as gross margins begin to normalize. JPMorgan sees a similar trend, but pegs it more to hoarding of PC components ahead of the March 11th earthquake in Japan. Keys to both estimates are gross margin in the 20%'s. Wells Fargo has gross margins at 19.5 percent or below, and Deutsche Bank is looking for about 20 percent as well.

JPMorgan sees Dell's storage business as coming under pressure from EMC ( EMC ). EMC is taking aim at Dell, H-P, and Hitachi Data Systems in the low-end to mid-range memory market.

Finally, looking ahead a bit, Deutsche Bank views the commodity environment as relatively benign, and should be at tailwind versus margin expectations.

Shares are trading at about 9.1x forward earnings, compared with 6.5x at Hewlett-Packard, and 11.6x for International Business Machines. Analysts are a little torn into the report, with 17 firms on the Street rating the stock a Buy, 17 at Neutral, and five recommending to Sell.

Analysts have a price target average of $17.75, with a high of $25 and low of $11. With Dell shares trading in a range of $11.34 to $16.80 over the last 52-weeks, there could be some upside left following earnings.

The Street is looking for EPS of $0.43 and revs of $15.40 billion. Below is a breakdown of several firms estimates:

  • Goldman Sachs: EPS of $0.43 on revs of $15.309 billion;

  • JPMorgan sees EPS of $0.43 on revs of $15.316 billion;

  • Wells Fargo has EPS of $0.41 and revs of $15.2 billion; and

  • Deutsche Bank expects EPS of $0.45 and revs of $15.4 billion.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: DELL , EMC

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