Dell Shares Are Rewarded

Updated from Feb. 12

Dell got a boost early Friday after the company delivered a penny upside in its January quarter. The results were announced after the bell Thursday. The rally came despite guidance from Dell that was merely in line with the Wall Street's consensus estimate.

The stock was recently up $1.03, or 3%, to $34.59.

The fairly steep stock gain may have to do with the low expectations that prevailed heading into Thursday's earnings conference call.

Though Dell certainly wasn't wildly bullish, "they said things are going up as opposed to Cisco, which said they really don't have visibility," said Scott Rothport, president of LakeView Asset Management and a Street Insight contributor. "It could be there were a lot of people shorting Dell thinking they would have a disastrous call like Cisco."

Rothport has a small short position in Dell, which he said was not for fundamental reasons but as part of a long-short quantitative basket.

Meanwhile, analysts found little new news to chew on as far as Dell's business goes. "No big surprises (not surprisingly)," summed up the title of a First Albany note. The bank raised its fiscal year 2005 EPS estimate by 2 pennies, to $1.26, noting that factors such as lower research and development spending and a lower tax rate could aid earnings down the road.

"Dell's consistency from one quarter to the next has eliminated virtually all suspense from its quarterly releases," pointed out Charlie Wolf of Needham & Co., who said the most noteworthy aspects of the quarter were 40% growth in both server and notebook shipments, plus Dell's success in meeting its guidance for 25% shipment growth. He's maintaining his fiscal year 2005 earnings estimate for $1.25.

Neither firm has an investment banking relationship with Dell.

Steady, Not Explosive

Thursday evening, President Kevin Rollins offered relatively subdued comments on the outlook for enterprise spending. "We think it will be steady but not explosive throughout the year," he said, noting that Dell is simply seeing a continuation of the steady improvement in corporate demand that it's seen for four or five quarters.

Though Rollins said demand is rising across the board, Dell hasn't yet seen it kick in among the biggest spenders. Rather, growth is most noticeable among small and medium businesses. "Starting at the low end growth is higher, then you see slower growth when you move to the most global companies," Rollins observed.

Dell's fiscal fourth-quarter net income totaled $749 million, or 29 cents a share. Earnings rose 26% from last year's levels.

Sales were in line with expectations at $11.5 billion, up 18% year on year. Dell said it saw unit shipments rise 25% year, in line with its guidance, though plenty of analysts had predicted a shortfall.