A rather positive story in the Interactive version of BARRON's on Dell .
interactive.wsj.com
The end of the story follows:
...
Furthermore, its core business, PCs, holds much promise. "It will be relatively
easy for Dell to expand into consumer," says Roger Kay, an industry analyst
with IDC. " It's easier to build from a commercial to a consumer franchise."
And in an effort to take on the price-cutters, the company's first sub- $1,000
PC unit, priced at $899, went on sale this week.
Meanwhile Dell continues to maintain share in its bread-and-butter corporate
business, and to grow dramatically in its high-margin enterprise business,
which includes servers, storage and workstations and comprises 14% of sales.
Dell is also leaner than its competitors, and keeps whittling down its costs.
"Dell's having record profits and Compaq, IBM, [Hewlett Packard] are all
losing money," says Schutte. "And Dell is bigger, . . . more profitable and
growing more rapidly than Compaq," which has its own problems, though the
worst appears to be over (see Weekday Trader, "Is it Turnaround Time for
Compaq?," July 12).
Dell also has great opportunities internationally: Sales to Japan and Asia, for
example, were up 48% last quarter, and it's growing rapidly in Europe, too.
At Thursday's closing price of 40 1/4, the stock is 26% off its 52-week high
of 54 5/16 that it set in January. Admittedly its P/Es of 56x estimated earnings
of 72 cents a share for fiscal 2000 (ending in January), according to First Call,
and 41x estimated earnings of 98 cents in fiscal 2001 are premiums to its
long-term earnings growth rate of 35%, and to the group.
But most believe that premium is deserved. "It is growing at three times the
rate of the S&P and you're paying less than that," says Kwatinetz.
"They're signficantly larger [than Gateway], and their revenue stream is much
higher," adds Terry O'Brien, senior technology analyst at Branch, Cabell &
Co., who rates Dell a Buy. Indeed, Dell posts 40%-50% revenue growth
versus's Gateway's 25%-30%.
"Among PC makers, the one we're most comfortable with is Dell," adds John
Leo, co-manager of the Northern Technology Fund. "The company is
maintaining its cost and business advantage. When it reports next week, they
will be able to meet and maybe beat Street expectations . . . and [should
show] solid unit gains."
Perhaps that's why two firms recently raised their ratings on Dell: BancBoston
Robertson Stephens to Long-Term Attractive from Market Performer, and
SG Cowen to Strong Buy from Buy.
Selling PCs is the easy part; making money in them is another story. "The
margins are thin and the margins for error are small," says Schutte. And there's
always the danger that the PC market will shift to "appliances" and trendy
devices like Palm Pilots and cell phones. "But I've heard that for five years
now, and every year [they have] a different name," says Schutte.
One thing's pretty likely, though: Five years from now, Dell will remain a
leader. That's not something you'd say with confidence about any of its
competitors. |
