DELL may be good but for how long?
take a look at this:
"1QFY'99 Results Strong, But Not Good Enough To Keep Our BUY Rating"
Research Notes
Subject: Dell Computer Corporation
(DELL--$94.59375)--OTC Opinion: HOLD
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Prior: BUY
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Date: May 20, 1998
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Market Profile
52-Week Range $99-$23 | EPS Growth Rate (3-5 Yrs.) 32%
Avg. Daily Volume 13,271 M | ROAE (LTM) 74%
Shares Outstanding 700.0 MM | Debt to Total Capital 26%
Market Capitalization $66,216 MM | Book Value Per Share $2.03
Floating Market Cap. $61,581 MM | Indicated Dividend/Yield None
Institutional Owner. 73% | Revenue (LTM) $13,659 MM
Insider Holdings 7% |
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Earnings/Share Fiscal Calendar Calendar
1Q/Apr 2Q/Jul 3Q/Oct 4Q/Jan Year Year P/E Ratio
------ ------ ------ ------ ------ --------- ---------
1998 $0.27 $0.29 $0.34 $0.38 $1.28 $1.25 75.7x
Current: 1999E 0.44A 0.46 0.50 0.55 1.95 1.90 49.8
Prior: 1.87
2000E - - - - 2.75 2.70 35.0
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Highlights:
- We are lowering our rating from Buy to Hold for price reasons even though we
are adjusting our EPS upwards. Management has executed very well and still
enjoys an economically advantaged business model. However, from current
levels, the company has to hit on all cylinders for the stock price to
continue the strong double-digit increase over the next 12 months, which we
are unwillingly to assess
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1QFY'99 was a very strong quarter, especially compared with the turmoil at its
major indirect PC competitors. Dell gained market share in all geographic areas
and in all product lines; all are profitable. It is now #1 in profits, #2 in WW
revenues, #3 in units among PC companies. A 50% revenue growth year is in sight
for FY'99.
1QFY'99 revenues were a little light due to lower ASP but gross margin improved
0.3% Q/Q because of component cost decline and a richer mix of
servers/workstations/notebooks.
Looking forward to the fiscal 2000/2001, some of the extreme advantages of the
Dell business model could diminish, as component costs decline in a more normal
fashion or possibly firm as DRAM prices could benefit from a looming shortage
in calendar 2000. As Dell becomes the number two desktop PC for corporations
and closing on the number one spot, any meaningful shift to the sub $1,000 PC
could slow revenue growth. Finally, as a $12 billion company, Dell probably
cannot sustain growth rate of 50% over the next two years. Current valuation of
P/E of 35 times our fiscal 2000 EPS estimate would only be cheap if Dell can
grow 40% to 45% next two years, which we are presently unwillingly to assume.
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