Still, Dell's stock is up 13% since the announcement. Dell is known for making PCs, laptops and printers, but has expanded its range in recent years via a partnership with EMC (EMC) and the acquisition of Perot Systems, a services provider, in 2009.
Commercial sales boosted quarterly results. Fiscal second-quarter profit increased 15% to $545 million, or 28 cents a share, as revenue grew 22%. The gross margin narrowed from 20% to 18% and the operating margin contracted from 5.9% to 5.1%, hurt by 22% and 45% increases in the cost of products and services revenue, respectively. Server and networking revenue jumped 35% and services revenue surged 57%. Consumer revenue stagnated at $2.9 billion as the division swung to a $29 million operating loss, proving that retrenchment is an ongoing trend.
Dell boasts an ideal financial position. Although it lost its shot at 3PAR, it has liquidity for more acquisitions to fuel growth. Dell held $13 billion of cash at the end of the quarter and $5.3 billion of debt, converting to a quick ratio of 1.1 and a debt-to-equity ratio of 0.9. Also, its stock is cheap, trading at a forward earnings multiple of 9.4, a sales multiple of 0.5 and a cash flow multiple of 7.3 -- 47%, 86% and 49% discounts to computer and peripheral peer averages. As a result, 20, or 51%, of analysts covering Dell rate its stock "buy," 16 rate it "hold" and one ranks it "sell."A median price target of $15.42 suggests that the stock will rise 13% in the next 12 months. Deutsche Bank (DB) is bullish, forecasting a gain of 46% to $20. Sanford Bernstein predicts a rise of 31% to $18. On the other end of the spectrum, Barclays (BCS) rates Dell "equal weight" with a $14 target. The bank's latest BarCap CIO survey suggests growth in spending on PCs and storage through the end of the year and into 2011. But, server investment dropped as a CIO priority, which will partially counteract any benefit from PC or storage sales. Cloud computing remains the investable tech theme and Dell offers exposure to cloud, but isn't a pure-play like NetApp (NTAP) or EMC (EMC). Barclays is "positive" on the industry, but isn't particularly hot on Dell. Its "buy"-rated stocks in the space include EMC and HP, which other tech analysts also favor. HP receives 27 "buy" recommendations, nine "hold" ratings and just one "sell" call. A median target of $53.04 suggests a 29% return. But, Barclays is less bullish, predicting a rise of 21% to $50. The British bank is most-bullish on EMC, its other "buy"-rated large-cap hardware stock. Barclays values EMC at $28, higher than any other researcher, implying a 12-month gain of 39%.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
24/7 market commentary from Jim Cramer and 20+ veteran Wall Street gurus. Get access to the latest trading ideas on stocks, options, and ETFs as well as a real-time forum to see the pros exchanging their investment ideas.
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV