PC Related Shares Soar; Dell Now Too Cheap, Bernstein Says
By Eric Savitz
* Tuesday, June 15, 2010 ET
blogs.barrons.com
Dell (DELL) shares today received a boost from Bernstein Research analyst Toni Sacconaghi, who noted in a research report that the PC maker’s shares have underperformed the broad market by more than 1,000 basis points since reporting earnings on May 19.
As Saccconaghi notes, the company reported revenue and profits that were materially above the Street consensus, but sold off on investor concerns over gross margins, which improved 20 basis points sequentially, rather than the 35 points the Street had expected.
Sacconaghi today repeated his Outperform rating and $20 target price on the shares, asserting that the recent sell off has been overdone. “While Dell’s gross margin was lower than expected in Q1, the company delivers its 4th largest revenue beat versus consensus over the last 39 quarters and EPS expectations post earnings increased for only the third time in the last 10 quarters,” he writes.
The Bernstein analyst notes that the stock is trading for under 5x EV/estimated free cash flow for the current fiscal year, a level which he thinks represents a bottom, and “makes Dell an attractive call option on improved execution, continued improvement in IT/PC spending and/or a return to falling component prices.”
Meanwhile, a variety of other PC related stocks - and tech more generally - rallied handsomely today.
UBS analyst Nikos Theodosopoulos noted this morning that tech has been trading at a 9% P/E premium to non-tech shares, well below the average 30% premium last year, and a 44% premium in the 2004-2008 period. The analyst contends that “a fair amount of caution” is already baked into valuation levels.
In today’s trading:
* Dell is up 96 cents, or 7.3%, to $14.05.
* Hewlett-Packard (HPQ) is up $1.14, or 2.4%, to $48.02.
* Micron (MU) is up 80 cents, or 9%, to $9.81.
* Advanced Micro Devices (AMD) is up 54 cents, or 6.5%, to $8.82.
* Seagate (STX) is up 69 cents, or 4.6%, to $15.59.
* Microsoft (MSFT) is up $1.11, or 4.4%, to $26.61.
* Broadcom (BRCM) is up $1.94, or 5.7%, to $35.85. |
