Dell is an outright sell or short

Posted Mar 7th 2007 3:46PM by Georges Yared
Filed under: Forecasts, Bad News, Dell (DELL), Hewlett-Packard (HPQ)

Fellow bloggist Brian White wrote an article that Dell Inc. (NASDAQ:DELL) shareholders are waiting for a plan. The problem is the plan is either not complete or is so underwhelming that the stock would find itself trading at $15, or worse. This stock is absolutely dead money. Why would anyone even want to nibble at Dell at this point? The 4th quarter was a disaster and guess what? There is a lot more bad news to come.

A company fighting to maintain already razor thin margins, in a price pressure industry that has been losing share and just canned its CEO is not done yet with the bad news. Michael Dell is back at the helm, but how willing was he to take over the post he vacated three years ago? Answer, probably not very enthused other than the pride of his name on the door. Hewlett-Packard Company (NYSE:HPQ) is sitting in the driver' s seat with a double win: Increased market share and pricing power. It can effectively drive Dell's margins down to 12-14% and eviscerate the earnings model along the way.

Consensus estimates for January 31,2008 revenues are for $58.2 billion and earnings per share of $1.19. For January 31, 2009, revenues of $61.7 billion and earnings per share of $1.50. Not gonna happen. These numbers must come way down before serious investors will take a look at this company. The stock currently at $22.60 is not going to last. Serious investors will start the analysis when Dell cleans up everything in its sight and the shares are marked down to $15.

With so many successful stories in the technology world, why put or even keep a nickel in this dying dog?

Georges Yared is the author of "Stop Losing Money Today" and "Baby Boomer Investing...Where do we go from here?"

Tags: DELL, HP

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Reader Comments (Page 1 of 1)

3-08-2007 @ 9:07PM

John Henry said...

You have hit it on the mark! Dell's big problems are looming large. They want to get into the services business but can't seem to find the door. HP and IBM Global Services can hardly hide their giggling. Dell has short-sheeted so many of their services vendors over the years (unnecessarily so) that most have gone off to make a living doing someone else's contracting. Those that are left can hardly stay with the big boys in size and capability. End result is that Dell must make a substantial investment putting together a real services division (they don't have one now). But, they have never done anything like that before - they've insisted for many years that they are a "hardware company." Alas, hardware now grows on trees, and money does not. They're going to need a lot of help - I have no idea where they'll get it.