Here are some fairly positive comments on DELL (and a few of the other PC firms)....FYI...
<<STOCKS ANALYSIS
Jan 28 2000 6:00AM ET
More on One Step Ahead...
Trends Seen Still Favoring PC Sellers
by Hal Plotkin
Silicon Valley Correspondent
Although divided on their favorite picks in the group, analysts say long-term
trends still favor the stocks of the three leading U.S. personal-computer sellers,
Dell Computer Corp. {DELL}, Compaq Computer Corp. {CPQ} and Gateway Inc.
{GTW}, despite increased component costs and lower margins in their core
businesses.
"It's a good place to be," says Louis Mazzucchelli, an analyst at Gerard Klauer
Mattison & Co., based in New York. "People are going to buy a lot of PCs this
year, and companies who know how to serve those markets are going to make
a lot of money."
Mazzucchelli says Dell and Gateway are his favorite picks among the top three
U.S. PC sellers at the moment. "Compaq is still having problems integrating
their acquisition of [Digital Equipment Corp.] and making the transition to direct
sales," he says.
Mazzucchelli currently has a $50 12-month price target on Dell and an $80
price target on Gateway.
Mazzucchelli says Dell's Wednesday warning that quarterly revenue and
earnings would fall below expectations doesn't change his overall outlook on the
stock.
"It just proves they are human and subject to external conditions, such as
higher component costs, like everyone less," Mazzucchelli says. "When you
look at it, though, you see the results are still outstanding, even with the
warning. I don't think it really changes anything."
Dan Niles, an analyst at Robertson Stephens, based in San Francisco also
says Dell's warning, which was anticipated on the Robertson Stephens' Web
site, hasn't dampened his enthusiasm for Dell's stock moving forward.
"We saw it coming," Niles says. "We think the stock could actually do well
from wherever it ends up after the warning. Dell is the ultimate logistics
manager and seller of PCs. They'll benefit from the Windows 2000 launch and
corporate upgrades."
Pick of the Week: Dell Computer
Niles formally upgraded Dell's stock to a "buy" rating on Thursday, after the
warning, setting a $50 12-month price target.
"Dell continues to grow much faster than the PC industry in its core business,"
adds William J. Milton, an analyst at Brown Brothers Harriman & Co., based in
New York.
Milton also has a "buy" recommendation on the stock with a $53 12-month
price target.
Walter Winnitzki, an analyst at Hambrecht & Quist, based in New York, says
Gateway is his favorite stock among the top three U.S. PC sellers. "Gateway
has the same kind of advantage model now that Dell had in the 1980s," he
says.
"History shows that the companies that tend to reward investors the best are
the agents of change in their sector," Winnitzki says.
He particularly likes the fact that about 25 percent of Gateway's revenue now
comes from non-hardware related business lines, such as Internet access,
training, and ad sales on the company's Web site.
"Gateway has taken the lead in creating a new business model," Winnitzki
says. "The important thing here is these new areas are all high-margin sales
that fall right to the bottom line. A lot of those sales are recurring revenues.
That's nice to have."
Winnitizki says Gateway's success in diversifying its product line gives the
company the financial flexibility it needs to drive down prices without destroying
profitability.
"Relative to valuation, investors are going to begin to disaggregate the profits
Gateway gets from different earnings streams," Winnitizki says. Service-related
earnings, he says, justify a higher multiple. "You should see Gateway's stock
price go significantly higher than it is today."
While it is relatively easy to find analysts who like either Dell or Gateway, there
are also analysts who strongly support Compaq's beleaguered stock, which
has recovered some since its October low but which is still far below its
12-month high.
Compaq Computer 52-week stock performance
"We like Compaq," says Jim Meyer, an analyst with Janney Montgomery
Scott, based in Philadelphia. "Dell is the better company, but right now
Compaq is the better stock."
Meyer issued a "buy" recommendation on Compaq stock several months ago,
when it was trading around $22 a share.
"I think we made the right call," Meyer says. "Compaq has moved up nicely
since then, while Dell has been moving mostly sideways. I have concerns about
whether Dell and Gateway can maintain their growth rates. You've got to make
some pretty aggressive projections on market share gains to justify their current
prices."
Compaq, on the other hand, "is just a lot cheaper, and I think they are moving
up the curve in accelerating their growth," Meyer says.
Meyer adds that he isn't too worried by some of the factors, such as
sales-channel conflicts, that have made other analysts, such as Mazzucchelli
of Gerard Klauer Mattison, more skeptical about Compaq's stock.
"What Compaq is doing is rationalizing the sales channels," Meyer says.
"Direct selling over the Internet is fine for PCs, and they are making good
progress on that. But there are other products" such as personal digital
assistants, "where you really do want to have a more flexible distribution model.
I know some other analysts disagree, but I think Compaq's more flexible
distribution will serve the company well as it broadens its product line."
It's a sentiment shared by Dan Niles, of Robertson Stephens.
"The truth is we like all three stocks, Dell, Gateway and Compaq, for different
reasons," he says. "Gateway is the beyond-the-box company of choice. And
we think Compaq has a very good story from here. They're in the middle of a
turnaround, and we like the stock."
In the U.S., Dell was the top PC seller in 1999, with a 16.6 percent market
share, according to International Data Corp. Compaq finished in second place in
1999, with a 16 percent share, and Gateway third, with 8.9 percent. The figures
represent a market share growth of 56 percent for Dell, 32 percent for Gateway,
and 19 percent for Compaq, compared with the previous year.
In the overall global market, however, the list looks a bit different, with Compaq
in first place with 14 percent market share, Dell second with 10.5 percent, and
International Business Machines Corp. {IBM} third with 8.2 percent. Gateway is
not among the top five PC vendors worldwide, according to the latest IDC data.>>
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