Dell is still a good buy at $100. No doubt in my mind. Here is an excerpt from the optioninvestor newsletter (www.optioninvestor.com)... which is a great newsletter i highly recommend...
Note especially growth in server and foreign sales...
Dell is the largest direct sales PC manufacturer in the world, listed at 125th in
the Fortune-500 and 343rd in the Global-500 of top companies, with $16.8 billion
in sales over the last 4 quarters. Dell has consistently outperformed any other
major stock for price performance. Dell is up +1200% in the last five years and has split their stock
five times in the last three years, two times in 1998 alone. Dell is a low price, high margin producer
because it has only 6 days of inventory and doesn't have to pay its suppliers (some who
manufacture in Asia) until 8 days later. Since Dell gets paid before it manufactures a box, they have
a huge cash float—can you say "83% return on equity?" In late December, they announced a
multi-year marketing deal with AOL to place AOL on all Dell desktops. In its server business, Dell
managed a 62% year over year sequential revenue growth. With over 200 product and service awards
earned during 1998, Dell has not forgotten its manufacturing and marketing prowess
Play Description
Veteran readers may recall our obituary to DELL written in October. For those who missed it, “It is
not often we have to write an obituary for a great play but for those of us still in denial, Dell may be
dead. We still think Dell is a great company. Great earnings, great sales, growing at +50%, opening
new markets. We think the problems are many.” We assumed that the shares in float, now totaling
about 980 million (that's “m”, not “b”), had split so many times, so as to dilute the stock's ability to
have big daily run-ups or even bigger earnings per share surprises. We reasoned it now takes an
additional $10 million of earnings to create $.01 per share surprise. Dell used to surprise us by $.05
routinely—pretty hard now to hide $50 million quarterly from Wall Street, especially for an earnings
surprise. In essence, Dell's ratio of daily turnover compared to shares in float couldn't move the price
as much. To add insult to injury, Dell really flattened out after its last split run to $69, where it fell
back to languish in the $60-$66 range. In early November, DELL spiked up to $72 in anticipation of
another earnings surprise but couldn't hold it after the announcement. So we dropped it despite its
sound fundamentals. Now, Dell's back.
From their 10Q filed with the SEC December 14th, we glean the following: During the third quarter
and first nine months of fiscal 1999, enterprise unit sales increased 112% and 165%, respectively,
compared to the third quarter and first nine months of fiscal 1998, and increased sequentially 13%
over the second quarter of fiscal 1999. Notebook unit sales increased 141% and 123% in the third
quarter and first nine months of fiscal 1999, compared to the same period of the prior fiscal year, and
increased sequentially 16% over the second quarter of fiscal 1999. Net revenue increased in all
geographic regions in the third quarter and the first nine months of fiscal 1999 as compared to the
same periods of fiscal 1998. Net revenue for the third quarter of fiscal 1999 compared to the third
quarter of fiscal 1998 increased 46% in the Americas, 68% in Europe and 49% in Asia-Pacific and
Japan. Net revenue for the first nine months of fiscal 1999 compared to the first nine months of fiscal
1998 increased 48% in the Americas,67% in Europe and 39% in Asia-Pacific and Japan.
Nowadays, this stuff barely makes the news. We think their price would be higher if it did.
Wednesday, Dell's volume swelled to over 27 million shares, well above its 19 million share average,
raising the price $2.19 to an all-time closing high of $85.31. If Dell can break this, its next resistance
is $88.13, set in Wednesday intra-day trading. Thursday and Friday, Dell fared much better than the
overall NASDAQ giving back only $2.31 on lower than average volumes. This shows investor
unwillingness to part with the stock, though we could sure use more high volume trading days. As
evidenced by Dell's tie for the #1 position in PCs and workstations, we can only offer an educated
guess that Dell contributed significantly to Microsoft's stellar earnings. What's good for the goose is
good for the gander, and we expect this to be well-reflected in Dell's earnings too. Heck, Gateway
impressed the market with upside surprise earnings. So will Dell as news of Dell's success's get
more notice running into earnings, scheduled Tues., February 16, after the close.
Update
It is not likely you'll hear this from the Wall Street Journal, Baron's or CNBC. So we'll spread the
word. While Hewlett Packard still rules the NT space, price deflation is favoring direct seller Dell,
which claimed 20% of the NT market in the September period, nearly double its previous share
(motley Fool). Hewlett-Packard and Dell, which had zero market share in the beginning of 1997, are
in a virtual tie for first place in both units and revenue for the personal workstation segment (Reuters).
That knocked Compaq out of the number two slot, as its market share plunged from 34% to 17%
(Motley Fool). Dell will integrate @Home's broadband Internet service experience with cable- ready
and Dell Dimension desktop PCs (PRNewswire). Dell will be the first major computer vendor to offer
the multiple award-winning Digital Flat Panel Solution Pack from Number Nine Visual Technology.
Thursday, they announced ImageWatch(SM), a program that provides early notification of technology
changes to Dell corporate and institutional customers, available at no charge. |
