American Technology Research on Dell

Not everyone hates Dell. Shawn Wu of American Technology Research sees a bargain:

We view the nearly 20% pullback in shares of Dell as overdone. We believe investors have turned overly bearish from overly bullish in an amazingly short period of time following Dell’s disappointing July quarter results and guidance and as a result we are upgrading the stock to Buy.
We find the risk-reward ratio at current levels attractive trading at 18 times our 2006 earnings per share (EPS) of $1.90 (and 15x excluding $5.11 in net cash) and see more upside than downside.
Our $43 price-target implies 24% upside and assumes a 20x multiple, which we believe is reasonable for a company with a long-term EPS growth rate of 15% to 17%.
In our view, Dell’s fundamentals have not changed that materially over the past few weeks. Dell remains among the best-positioned in hardware with its direct model, world-class low-cost supply chain, and broad product line.
Our checks with resellers/channel partners and Taiwanese motherboard manufacturers as well as recent commentary from PC food chain semiconductor suppliers give us confidence that the PC segment is positioned to grow at or above seasonal rates, particularly in mobile computing.
While it is early with nearly seven weeks left, we remain comfortable with our above consensus October quarter forecast of $14.5 billion in revenue and $0.41 in EPS (consensus at $14.3 billion and $0.40). We believe January quarter consensus revenue estimates may prove a tad too high, but we believe this concern is reflected in the pullback in Dell shares.
What could go wrong? On the macro level—if investors focus more on high energy and oil prices, Dell could fall with the broader market. At the company level if Dell may continue to not execute like in its July quarter.
We are, however, giving management the benefit of the doubt due to its relatively strong track record over a long period of time. We believe management is focused on fixing its miscues. In addition, we believe investor expectations have been reset with the pullback in shares.

Posted by on September 9th, 2005 at 3:04 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.