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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: kemble s. matter who wrote (159887)	8/21/2000 5:20:08 PM
From: calgal	Read Replies (1) \| Respond to of 176387

Hi Kemble! It's not smart to take your eyes off of Dell. Leigh Gateway Still a Notch Below Dell A top-notch value investor recently said computer maker Gateway is earning more than Dell, and the market isn't seeing it. My calculations, however, put Dell far in the lead in terms of returns on equity, invested capital, and free cash flow. By Richard McCaffery (TMF Gibson) August 21, 2000 Recent comments from Bill Miller, legendary value investor and manager of Legg Mason's Value Trust mutual fund led me to a topic for this week's Boring Portfolio. In a July 2000 interview in SmartMoney magazine, Miller praised direct sales computer company Gateway (NYSE: GTW), which, as of June 30, was his second-largest holding, constituting 6.43% of Value Trust's assets, just behind America Online (NYSE: AOL). Gateway overtook rival Dell (Nasdaq: DELL) as Value Trust's second-largest holding earlier this year, when Miller added to his Gateway position after a fourth-quarter earnings scare related to a chip shortage. At the same time, Miller has pared back his stake in Dell, believing the days of outsized returns for the Round Rock, Texas company are finally over. In the article Miller said, "The Dell P/E multiple is two times the Gateway multiple even though Gateway is earning more than Dell." Since Miller made that statement, Dell's price has declined, so it now has a forward P/E of 41.2, compared to Gateway's 34.3. While it's clear that the multiples of these two great companies are converging, what interests me is Miller's contention that Gateway earns more than Dell. I'll run you through a few quick calculations to show you where I think the companies stand. I'd really like input from Bore readers on this topic, since many of you probably know the companies better than I do. Annualizing the Q2 numbers, I have Dell earning higher return on average equity (ROE), return on invested capital (ROIC), and free cash flow relative to tangible assets.* If Gateway is earning more than Dell, I can't see it. [I calculated ROIC using the following formula: NOPAT (Net operating profit after taxes)/ total assets minus non-interest-bearing current liabilities and excess cash.] Here's the comparison: ROE ROIC FCF/Tangible assets Dell 39.9% 63.0% 22.3% Gateway 21.4% 26.5% 14.7% * Free cash flow and balance sheet numbers taken from 1999 annual reports. Excess cash is backed out, as are tax benefits from Dell's stock options. As you can see from my numbers, while both box makers are excellent companies -- far above the norm in terms of profitability -- Dell outshines Gateway in every category and seems to deserve its higher multiple. Of course, my calculations are backward-looking. It's possible that Miller thinks Gateway will generate greater free cash flow in the future, though it's very hard for me to see how, considering Dell's commanding lead and leaner structure (i.e., lower asset base relative to earnings power). It's also possible Gateway has a wider spread between its return on invested capital and cost of capital, but that's also very hard for me to believe considering that Dell's ROIC greatly exceeds Gateway's. On the other hand, in terms of multiple expansion, I could see Gateway having more room to grow than Dell, so perhaps it makes sense that Gateway is Value Trust's second-largest holding. Still, I have to ask, is it possible at this late stage that the market isn't properly valuing Gateway given all the time it's had to see Gateway's efficiencies, and see the success of its country stores and its beyond-the-box expansion program? It's possible. We'll find out. fool.com

To: kemble s. matter who wrote (159887)	8/21/2000 5:56:13 PM
From: calgal	Read Replies (1) \| Respond to of 176387

Dell Computer: Quality Management Makes the Difference Expert from Dell to Discuss 'The Future of E-Support' at GBC E-Business 2000 CHAPEL HILL, N.C., Aug. 21 /PRNewswire/ -- Industry Week magazine has chosen Dell Computer Corporation one of "The World's 100 Best Managed Companies" in its August 21 issue. Dell Computer appears on the list for the fifth year in a row. Beginning with a pool of over 1000 candidate companies, magazine editors used a combination of "financial formula results, questionnaires, company information, and expert panelist and editor votes," to identify the top 100 best managed companies. The magazine identified Dell's "value-chain and lean- manufacturing practices" as the key to its consistent placement on the list. Dell Computer is in select company. Joining Dell on Industry Week's list of five-time winners are Cisco Systems, DuPont, Eli Lilly, Intel, Johnson & Johnson, Nokia and Pfizer. What else do these companies have in common? They are all members of the Global Benchmarking Council. "One way these top companies improve their overall management is to learn from the experience of others," said Chris Bogan, President and CEO of Best Practices, LLC, the leader in benchmarking and best practice research. "World-class companies view the GBC as an ideal resource because it provides an established network of experienced business professionals from which to learn. If you have a question, someone in the GBC has the answer," Bogan said. Drawn by discussions of E-Service, E-Human Resources, E-Sales & Marketing and Benchmarking, GBC members and guests will gather in Las Vegas, November 8-10 for GBC E-Business 2000. E-Business 2000 will include detailed presentations, knowledge sharing roundtables, and informal events focusing on new and ongoing e-business initiatives. Attendees will participate in interactive presentations from companies including Dell Computer, Texas Instruments and Glaxo Wellcome. Get more information about the GBC and register for GBC E-Business 2000, at the GBC website (http://www.globalbenchmarking.com ) or call Rachel Porter at 919-403-0251 ext. 225. ABOUT THE GLOBAL BENCHMARKING COUNCIL The Global Benchmarking Council (GBC) was launched in 1998 by Best Practices, LLC in collaboration with founding member companies GTE, Sprint, DuPont, and AT&T. GBC Membership transforms colleagues into partners and partners into friends. To join or to receive more information about GBC membership benefits, please visit the GBC website at globalbenchmarking.com or call Rachel Porter at 919-403-0251, Ext. 225. quote.bloomberg.com