Darrell, RE: i don't think anyone disagrees with Kumar's analysis of the current situation - but to what extent his future predictions have been right - not so agreeable; the final analysis is Dell rebounded each time, after each of his warnings. it remains a strong company. what growth rate would be acceptable to the market to maintain a $60 twelve month price target? why was this not addressed?
First and foremost to remember is that what you read on the SI DELL thread about Kumar and what Kumar actually says are two very different things. This thread tends to take anything even remotely negative that an analyst says and blow it completely out of proportion.
The fact is that Kumar was one of the earliest analysts on Wall Street to spot DELL's competitive advantage in the PC industry. As long as I can remember, he has had DELL rated at either a 'buy' or a 'strong buy'. Neither of these, even in the world of Wall St euphemism's, is close to being neutral or sell. Kumar has alwyas thought that DELL has been a solid long term investment. It remains his only stock in computer hardware rated either 'buy' or 'strong buy'.
His last 'warning' was a revenue warning, and he was right on. The company came in light on the revenue side, and the stock dropped accordingly.
So it seems if you judge by recent history, Kumar has been correct from both a long term and short term perspective.
As far as the growth rate needed to maintain a $60 target, that is purely subjective. I would argue that a PEG of 1.5 would be appropriate for DELL. With $1 in earnings, that leads to a necessary growth rate of 40% to reach a $60 price target. Others argue for a PEG of 3. A growth rate of only 20% would be necessary in this case.
Finally, you state a few times that you question the 'saturation' argument of the PC industry. I have no problem with that. I do not understand, however, what that has to do with Kumar.
Already, Ericsson states that China is its largest foreign market. Dell calls China "significant". Mexico's standard of living is way improved from just two years ago. Do we focus on India, China, and Mexico's needs (all of which represent nearly 7X the population of the US) or be more concerned about short term hiccups?
Note that this same argument about these countries has been made for about as long as I have been in the investment business. Although it will be true eventually that these countries will be very important, they have not as yet. Two decades ago, a lot of people would have thought that PC income in China would be huge in 2000. We now know that PC income in China would be non-existent. If DELL makes $1 billion in China next year, it will be worth about 40¢ to common shareholders. If DELL makes $1 billion in China in the year 2010, it will be worth 16¢ or so to common shareholders. There are a host of other issues that make China a question mark for DELL.
why would Chu visit with Dell regarding storage and come away with a "strong buy" recommendation, yet Kumar, with no visit, state it's a dead issue?
First of all, how do you know that Kumar has not visited DELL? Do you have a source outside of this thread to confirm that?
Secondly, it is not at all unusual for two analysts to look at a situation and come away with divergent opinions. This happens all the time, and is entirely logical. A strong buy is an opinion, not a fact. |
