Dell's ( DELL)
strong showing in the most recent quarter prompted Wall Street analysts to do something nearly unheard of these days: boost their profit outlook for the company. Citing its market-share gains and cost-cutting efforts, a raft of analysts nudged up their earnings expectations for the remaining two quarters of this year and next year, too. A day after it reported earnings, shares of Dell rose slightly in midafternoon trading, gaining 46 cents, or 1.7%, to $27.60. Most of the other computer makers were higher as well. Hewlett-Packard ( HPQ) was up 5 cents to $15.05. Apple ( AAPL) gained 13 cents, to $15.74, but Gateway ( GTW) was off 14 cents, or 3%, to $3.95. Despite the torpid outlook for PC sales, Dell continued to show an uncanny ability in its second quarter to wrest business from competitors. "What impresses us most is that Dell's share gains continued in a difficult environment, with market shipments down 8% sequentially," Lazard Freres analyst Luke Fichthorn wrote in a research note. "We believe that this is a good illustration of the Dell story -- as the overall market remains weak, share gains should continue to drive revenue growth (in a profitable way)." Dell's gains appear to be taken from the hide of its biggest rival, H-P. Back in the second quarter, the merger of H-P and Compaq had toppled Dell from its lofty post as the leader in worldwide PC share. The Austin-based PC vendor then claimed 14.8% of the market, compared with H-P's 15.1%. But within the quarter, Dell managed to increased its share by 0.5% sequentially, while HPQ gave up 2.1%, according to estimates from industry tracker IDC. "Dell and others, such as IBM, appear to be taking advantage of the integration efforts at its biggest rival," Fichthorn wrote. Despite the strength in its business, potential investors remain leery about the amount of upside in the stock. The stock currently trades at 29 times Lehman Brothers' 2003 earnings estimate, analyst Dan Niles pointed out in a research note. That's well above its five-year price-to-earnings low of 12 times. On the other hand, it's still below the stock's P/E median, over the past five years, of 39 times earnings. Niles has a 12-month price target of $30 on the stock, implying it could rise to a multiple of 32 times earnings, which would still be less than the five-year median. But given the weak outlook for PCs, some analysts remain wary at the current level. Lazard's Fichthorn called Dell "fairly valued," but added, "we would not hesitate to buy the stock if it dips into the low $20s." Additionally, Bear Stearns, Prudential and Salomon Smith Barney had positive comments on Dell's quarter and lifted their estimates for the company's earnings.