Alohal,
Pretty sensible comments from Briefing.com this morning. Not sure if they have been posted here, but thought I'd post them anyway. BTW thanks for your great posts on this thread, enjoy them!
Best Wishes,
Sam
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To be concerned, or not to be concerned? That is the question to which Wall Street is not providing a firm answer this morning. After the close yesterday, Dell Computer (DELL) warned that October quarter margins (and hence earnings) would be hurt by higher memory chip prices. They suggested it would be a short-term problem. Fair enough. In fact, it shouldn't come as a big surprise, because the increase in chip prices is well known. But the market reaction indicates that the underlying, long-term sentiment towards DELL is softening. After all, there was a time when any temporary weakness in DELL's stock price, for whatever reason, would lead to immediate buying on the dip. This morning, however, CS First Boston is cutting earnings estimates not only for the October quarter, but for the subsequent quarter as well (even while reiterating a "strong buy" on the stock), and Bear Stearns has downgraded Dell from "buy" to "attractive". Not terrible stuff, but also notable by its absence is the typical rallying around the flag that Wall Street often comes up with in such circumstances. The problem is that DELL has lost some of its pizzazz. Revenue growth has "slowed" to near 40% from 60% a couple of years ago, and profit growth the past two quarters has been 52%, down from the 94% in fiscal 1998 and 65% in the two quarters a year ago. Perhaps more importantly, the stock price has stalled, and is down from its high of 55 back in February. Wall Street would probably be quicker to the rescue if they felt the stock still had momentum. DELL still trades at about 60 times trailing earnings, so any slowdown in revenue and profits understandably creates some concern, but this is still clearly a world class brand name and a well run company. The P/E isn't even all that high considering the high profit growth. So, Briefing.com is keeping DELL on its Core list, but we fully recognize that it isn't likely to quickly bounce from yesterday's news. It has become more of a long-term play than a momentum play, which the hot action has moved elsewhere. Our answers: concern - some, patience -yes, panic - no. |
