Wednesday, November 22, 2006

Pre-Market - Dell Inc. (Public NASDAQ:DELL)

Thomas Weisel notes preliminary results were in-line on rev expectations but beat on EPS. Firm says storage rev growth was the highlight of the quarter, which grew 27% y/y. On the negative side, desktop rev declined 9% y/y while notebook rev was up only 8%y/y. Server rev grew a solid 8%y/y. They believe higher gross margin was the main driver for EPS upside. Gross margin of 17.1% was 141bp higher than their est of 15.7%. THey say it appears that DELL walked away from lower margin business in both desktops and notebooks, and they note that enterprise was strong, which carries higher margins. Firm believes that DELL is benefiting from the AMD adoption in its PCs... ThinkEquity notes DELL reported better-than-expected revs and a much better than expected EPS number. Strong gross margins were responsible for the better bottom line, but firm does not believe this is sustainable going forward. Competition in the PC sector continues and an increasing percentage of revs are being derived from lower-margin emerging market business... Robert Baird says that although attention on DELL's profitability should fuel recent optimism driving shares, at 14x cash adjusted C07E EPS, firm feels valuation is not overly compelling given questions on growth, longer-term margins, better executing competition, and accounting issues. Firm also raises their tgt to $26 from 24 based on 11x EV/C07E EBITDA... Friedman Billings says gross margins rebounded strongly, leading them to now suspect that the July quarter was a cleanup and that extended warranty margins are in better shape than they thought. This, in turn, means that the trajectory of margin recovery should be steeper than firm had estimated. Firm believes the major questions around bottoming margins have been answered and that Street ests and valuation will rise accordingly... ( Note: Credit Suisse raised their tgt on DELL to $25 from $18. Bear Stearns upgraded DELL to Outperform from Peer Perform. ) Courtesy of

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