Dell (NASDAQ: DELL), a PC maker whose rivals include Apple (NASDAQ: AAPL) and Hewlett-Packard (NYSE: HPQ), is due to report second-quarter numbers on Thursday, August 28, after the market close. It's going to be interesting to see what the company says about demand levels for its PCs. We're still working our way through a tough economic period, so in some respects, this will be a sign of how the consumer is faring.
Of course, Dell has been trying to stage a comeback lately even without regard to the economy. As with any once-hot growth stock, there comes a time when the capital appreciation starts to slow and gains are digested. Dell's shares have cooled over the last several years. Dell's stock has decreased over 21% over the five-year timeframe, and 29% over the last three years.
Lately, though, the stock has been stronger and, appreciating over 20% in the past six months, and nearly 7% in the past month alone.
Dell is expected to report a double-digit increase in the bottom line this Thursday. The call is for 36 cents per share, according to Earnings.com. Last year at this time, Dell posted earnings of 32 cents per share. Looking at the history of Q2 results, I'd say it's a decent bet that the company meets expectations. If management were to blow the estimates out of the water, it would be impressive, but my gut says that won't happen. According to Trey Thoelcke, top-line revenues should expand by roughly 8%.
Shareholders, as well as potential investors, should pay attention to how well the company is doing with its goals of controlling costs. During the first quarter, management talked about its desire to reduce costs to the tune of $3 billion over the next few years. At the same time, the company indicated it was willing to spend money to grow its business.
It's a delicate balancing act, and protection of margins is key with the PC business. There's a lot of competition out there, and Dell needs to grow earnings while simultaneously growing market share. Cash flow will also be something to watch. Dell seems to focus on this metric. In fact, the company wants net cash flow from operations to be higher than net earnings. Any cash-flow guidance would be welcome.
I don't expect the quarterly results to be too dramatic one way or the other. I won't be trading Dell ahead of the numbers. Since the stock has been relatively strong of late, I'd fear a sell-on-the-news reaction from jittery traders even if things turn out better than expected.
And besides, I'm more infatuated with Microsoft and Apple in terms of tech stocks (for that matter, Hewlett-Packard isn't bad, either). Dell is still working through stuff, and while I will be curious to see what Q2 brings for it, I just don't have a huge desire to either invest or trade the shares.
Disclosure: I don't own any company mentioned; positions can change at any time.
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