DELL Analyst Meeting: 4/9/99 (Part 1, Deutsche Bank)
07:37am EDT 9-Apr-99 Deutsche Bank Securities (Fortuna/Cidambi) DELL
Dell - Analyst Meeting Springs No Surprises
DELL ANALYST MEETING SPRINGS NO SURPRISES
Subject: Company Update
Analyst: Steven M. Fortuna, (617) 988-8666
Associate Analyst: Kumar S. Cidambi, (617) 988-8668
Industry: PC Hardware
Date: April 9, 1999
Ticker: DELL Current-Rating: BUY Target
Price: $57
Price: $45 Previous-Rating: BUT
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Fiscal Year: January
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EPS 1999A 2000E 2001E
TR. Actual Prior Current Prior Current
1Q $0.11 $0.15 $0.15 $ $
2Q 0.12 0.17 0.17
3Q 0.14 0.18 0.18
4Q 0.15 0.20 0.20
Total EPS: 0.53 0.70 0.70 0.95 0.95
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Shares Outstanding (MM): 2740 Market Cap ($BB): $123
3 Year EPS Growth: 35%
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* We believe the most important take-away from Dell's analyst meeting is
that end-user demand continues to remain healthy and that the company's
first quarter, ending April, is on track to meet the consensus estimate
of $0.16 per share. Consequently, we are leaving our fiscal year
2000/2001 sales and earnings estimates unchanged at $24.3 billion/$32.6
billion and $0.70/$0.95, respectively.
* Importantly, management's commentary supports our thesis that many of
the PC demand fears and concerns that arose earlier in the quarter were
primarily a result of channel dislocation and indirect vendor woes.
Indeed, the fact that Dell didn't see any slowdown during this period
leads us to believe that Dell took more than anticipated market share
from its indirect competitors.
Other noteworthy highlights include (1) Dell expects worldwide PC unit
growth in the 14% range over the next three years, in line with our
13.7% forecast, (2) so far this year, Y2K has had no material impact on
demand, although the company does anticipate the federal government
will be in a heightened state of replacement in the second half of the
year, and (3) Dell expects that Intel will follow its traditional modus
operandi and drive rapid P3 conversion through aggressive pricing. This
would clearly be an important stimulus to the ongoing replacement cycle.
Dell also cited a number of other industry growth drivers including NT
enterprise systems, replacements, Internet, Windows 2000, broadband, and
the general longer-term trend toward an increasing level of global IT
spending as a percentage of GDP. As expected, the company announced
plans to more aggressively market its sub-$1000 product offerings. Dell
claims that its gross margin percentage on these lower-priced machines
is roughly comparable to that of machines with more traditional price
points. Importantly though, Dell indicated it will not enter the super
low-priced, sub-$500 market, anytime soon given the small profit
opportunity. Dell's valuation should be considered in light of the
company's unique position. By this, we mean that while Dell clearly has
the dominant model in the PC industry, its worldwide market share stands
at less than 9%. Given its myriad growth opportunities, this leaves
the company with substantial headroom to sustain our forecast top- and
bottom-line growth in the 35% range over the next two-to-three years,
in our opinion. With this in mind, we believe Dell's current valuation
of 61x forward consensus estimates can easily be justified when one
considers that the market trades at roughly 25x with a forecast EPS
growth rate of around 5%. Using a 60x multiple on our fiscal 2001 EPS
estimate of $0.95 suggests a one-year stock price of $57, up over 25%
from current levels. We reiterate our BUY rating on Dell shares. |
