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Dell Inc (NASDAQ: DELL) most likely has a good six-to-nine months of work before management changes begin to show up in results.

Last night's earnings release, by Dell's standards, were simply awful:
  • Reported revenue declined 5%; when adjusting for an extra week in the previous year, however, revenue increased 3% -- still awful.
  • Operating margins are now down to 4.9% -- not good.
While Dell's results point to a growth company gone bad, there is some room for optimism. Gross margin came in at 16.9%, versus estimates at 16.5%. So the worst in gross margin performance might be behind the company. However, SG&A expenses were higher.

So why build a position in Dell? Hewlett Packard Company's (NYSE: HPQ) operating margin is 7.6%, margins that Dell used to hit. Also, Dell, in its peak years, would generate gross margins over 20%. Therefore, Dell, if it can get its house in order, could show some nice operating leverage.

Another potential positive is that at some point the industry will have a PC upgrade cycle. This could put some wind into Dell's sails. Don't throw Dell's stock out with the bath water. Chip away on market corrections. The stock, if a turnaround plan is well-executed, could hit $30 on signs of improving business and margin trends.

Time to build a position in Dell? originally appeared on BloggingStocks on Fri, 02 Mar 2007 08:25:00 EST. Please see our terms for use of feeds.

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