Niles...and this morning...
Certainly, it is always disappointing to get a downgrade..especially from one like Niles who has had some success with his calls (while also making some bad ones too)..
Let's compare his call TODAY vs. his (correct) call in January:
In January, he made his call about 1-2 weeks BEFORE the earnings announcement...and the quarter was over and in the books........It smelled (given he absolutely NAILED the revenue target...) like he got tipped off...of course, given the near-ness to earnings, the market took the stock down hard....
This time, earnings will not be released until 3rd week of November...We are JUST STARTING the 3rd month of the quarter...additionally, the last quarter usually is a larger weighting in the company's quarterly performance...at this point...even Dell can not tell you (to precision) if Dell is going to grow revenues at 9%, 10%, 11% this quarter....There is still a lot on the table....next week Dell will know better than this week (about October)....
But certainly, regardless, Dell will know (how October sales) are looking BETTER than Niles at this point (surely, one is not going to believe that Niles can forecast BETTER than management), and certainly, they will know better than Niles going into the meeting next Wednesday..... and, surely, they will let the analysts know (in detail) next Wednesday ...
So, January's call (and today's call) are not the same. Not by a long-shot...
Also, remember, Niles was extremely bearish on Dell until last quarter's earnings announcement..so he did not (at all) predict last quarter's "surprise" of .19...) and earlier this year was predicting that all PC's would be sold by the "cell phone" method (free PC, charge for service) in short order, and this made Dell.....uh....let's just say....not a good pick (short/long-term) in his book.......That view, obviously, changed with August's earnings...
Interestingly, Niles did not change his earnings estimates for 2001...keeping them at 1.04...he lowered fiscal 2000 estimates from .77 to .74....so he is looking for Dell to produce EPS of .19 in Q3, and .20 in Q4
(16+19+19+20= .74)
Now, given the "early-ness" of this call (quarter only 2/3 over)....Kumar could easily be off 1-1.5% on q-over-q revenue growth (let's say it comes in at 10.5% for the quarter....vs. 9.0%)....I believe 10.5% rev. growth would still get us .20 (.195) this quarter....even with a .5 decline in GM....
I am assuming (splitting) Niles 1% GM decline over 2 quarters..so .5% each quarter...
A 1% decline in GM seems pretty drastic.....so, I am assuming Dell has an opportunity to narrow that (potential) decline over the next two quarters...
Last I checked, Dell's consensus estimate was .199.....With Niles (and any other downgrades/earnings revisions)..this could lower the quarterly estimate to .19....giving Dell the ability to reach .20, and still be .01 above estimate...
even if it stay at .20...given the problems of this quarter...if Dell hits the estimate (with a positive forward)..I think the stock would recover...Certainly, if the consensus stays at .199 (or .20)...by next Wednesday, and by next Wednesday, Dell believes it is in risk of not making the consensus..they are going to let analysts know (at that time)...so we will know more Wednesday...
Also, if Niles is right about the immediate impact, but the problem is (mostly) confined to Q3...then Q4 could provide nice upside..given Niles (and others') lower estimates..
One should repeat, again, that Niles totally blew his Micron at $40 call (earlier in the summer) as well as Intel in the 50's (back in April)...so he is not infallible by any means...and the further out his calls (like today's)...the less accurate....
Again, we will know much more next Wednesday...
Oh....if Dell longs are looking for a little courage...think Microsoft 2000, think end of Y2K, think Xeon...and think about this: Q1 '00 (last May)....Dell reported (for Dell) "slow" revenue/earnings growth....and EPS (quarter over quarter)..."only" rose from .155 to .16...
Why do I mention this? Some musing....
Project a bit forward to next year....If you think Dell can acheive .24 in Q '1 '01 (and I do)...that .24 would represent EPS growth of 50% (y-o-y)
Even .23 would be healthy....but I have a hard time seeing "only" .22............even Niles didn't lower his '01 estimates this morning.......at 1.04 for next year..he must be sticking with (at least) .23 for that quarter....
But I digress...
Waiting 'til next week.. |
