Dell Upgraded, Poised for Sales Growth - TheStreet

ROUND ROCK, Texas (

TheStreet

) -- An improved spending climate and EPS upside earned

Dell

(DELL) - Get Report

an upgrade from Bank Of America/Merrill Lynch.

The investment specialist

upgraded Dell to buy from neutral

on Wednesday, ahead of the tech bellwether's fourth-quarter results next week.

In response, Dell's shares jumped up 30 cents, or 2.21%, to $13.85 shortly after market open, despite the broader dip in tech stocks that saw the Nasdaq fall 0.7%.

Michael Dell, Chairman and Founder of Dell

The tech giant's stock has fallen almost 13% in the last three months, although

Dell is expected to reap the benefits of PC upgrades

and improved enterprise spending.

Citing the company's underperformance since November, BofA urged investors to consider

Dell, pointing to a potential 2010 uptick

.

"Downside seems limited over the next six to nine months as the risk/reward now seems compelling," wrote BofA research analyst Scott Craig. "We believe low investor sentiment, high short interest, compressed valuation, possible enterprise refresh and likely positive EPS revisions positions the shares for better performance in 2010."

Dell is gearing up for a

busy few months

.

AT&T

(T) - Get Report

will start selling the company's forthcoming

Android phone

during the first half of the year, and

Dell recently gave consumers a sneak peek

of its eagerly-anticipated

Dell tablet device

.

Dell also spent $3.9 billion to acquire Perot Systems

in September, a move likely to serve as the launchpad for an IT services push in 2010.

Like many firms, however, Dell did not have the easiest of times during the recession, and has also had to contend with

fierce competition

from hardware rivals

Apple

(AAPL) - Get Report

,

Hewlett-Packard

(HPQ) - Get Report

and

Acer

.

Dell's third-quarter sales came in below analysts' estimates

and were down 15% on the prior year's quarter.

Dell's gross margins also shrunk 1.4 percentage points to 17.3% in the quarter from 18.7% in the prior quarter. The slip shows that cost cuts had not kept pace with falling sales.

Analysts surveyed by Thomson Reuters expect Dell to report fourth-quarter revenue of $13.82 billion and earnings of 27 cents a share, compared to $13.4 million and 18 cents a share in the same period last year.

BofA is unwilling to make a call on the Dell's fourth-quarter results next week, although the investment specialist raised its sales and earnings estimates for fiscal 2011 and 2012.

For 2011 and 2012, BofA expects Dell to post revenue of $58.5 billion and $64.7 billion, respectively, from its prior estimate of $56.1 billion and $59.4 billion. For earnings per share, BofA predicts $1.31 in 2011 and $1.55 in 2012, compared to its prior estimates of $1.26 and $1.42, respectively.

-- Reported by James Rogers in New York

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