Updated from 1:25 p.m. EDT
Investors bid up
shares Thursday, following an analyst's note suggesting that investors have learned to live with slower growth.
Describing the PC maker as a "potential turnaround candidate" and pointing to room for profit margin upside, Goldman Sachs analyst Laura Conigliaro raised her rating on Dell to neutral, after sentencing the stock to a two-and-a-half-month stint on the sell list.
Shares of Dell edged up 3.1%, or 75 cents, at $24.77 in midday trading Thursday.
Goldman, which makes a market in Dell shares and has provided investment-banking and non-investment-banking services to the company in the past 12 months, put Dell on its sell list in mid-August, a day after the company reported
mediocre quarterly results and revealed that it was the subject of a regulatory probe.
Now, Goldman believes the sell rating has "run its course" with investors accepting the company's slower revenue growth and focusing instead on margin improvements.
Conigliaro noted that Dell's shares have underperformed Goldman's broader index of hardware companies by 767 basis points since the sell rating was initiated.
But investors who chose to hold on to their Dell shares did alright - Dell's stock has gained 15% since Conigliaro's slapped it with a Sell rating.
"The sensitivity of Dell's model to margin changes should be particularly pertinent this quarter as more disciplined pricing and more attention to mix enable Dell to achieve consensus estimates or better, even if revenue comes in light of expectations," wrote Conigliaro in a note to investors.
Dell is scheduled to report its third-quarter earnings on Nov. 16.
Conigliaro also raised her price target for Dell to $26.50 from $21.
"Although we have changed our model to reflect lower revenue and higher margin, we still expect Dell to achieve above-consensus earnings
Still, Conigliaro noted that absent a restructuring, Dell's model tops out at 7% normalized revenue growth, 17% gross margin and 6% operating margin.
In other words, "this is not the 'Dell of old," Conigliaro wrote.