It may be difficult to imagine it now, but just over a decade ago, Dell (NASDAQ:DELL) was at the top of its game. It seemed like everyone was “Getting’ a Dell”. Since then, due to astronomical pressure to innovate and a challenging competitive environment, this computer maker has slipped behind Hewlett Packard (NYSE:HPQ) and Lenovo (PINK:LNVGY) With the company’s earnings announced last week, let’s see if Dell is continuing to flounder or whether it has a new ace up its sleeve.
With its roots stretching back almost three decades, Dell is the third-largest PC maker in the world. The company has also branched into other kinds of computer equipment and accessories, including data storage devices, software and network switches. Dell also has a hand in marketing High-Definition TVs, MP3 players and printers. The company employs over 100,000 worldwide and brought in over $62 billion in sales in FY 2012.
Earnings Buzz: In the first quarter, Dell reported slower consumer demand as well as weaker margins. As such, the company’s bottom line shrunk by 33% to $635 million compared with $945 million last year. Adjusted earnings weighed in at 43 cents per share; this missed the 46 cents per share consensus estimate by 7%.
Over the same period, the company’s sales dropped 4% to $14.42 billion; this also missed the $14.91 billion consensus estimate by 3%. But what really sent shares of DELL down to a new low was the company’s weak sales outlook for the second quarter. Currently management expects sales in the range of $14.71 to $15 billion, while the Street view calls for $15.42 billion in sales.
This year, Dell Inc. has been on a buying spree, having acquired AppAssure, Clerity Solutions and SonicWALL Inc. And, before the opening bell Thursday, Dell announced that it has completed its acquisition of global cloud computing player Wyse Technology Inc. Under the terms of the deal, Dell will acquire Wyse Technology’s 180 patents, including key virtualization solutions and cloud computing software. Additionally, the company plans to acquire Make Technologies. These acquisitions suggest that Dell is moving away from the PC Market and is looking to capitalize on demand for cloud computing services.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Over the past 12 months, this stock has come full circle. Last May, DELL was a C-rated hold, then it improved all the way to an A-rated by in January. Since then, however, the company’s rating has been on a steady decline, and it is currently back down at a C-rating. That’s due to a combination of lackluster buying pressure and mediocre fundamentals.
On the fundamentals side, Dell does well in terms of cash flow, return on equity, operating margin growth and its track record of analyst earnings revisions. However, the company has weak sales and earnings growth, and its track record of beating those suprises is abysmal. With last week’s earnings report, this company’s C-rated Fundamental Grade isn’t going to improve anytime soon.
With the company’s weak outlook and drop in profits, I definitely recommend that you hold off on buying shares of DELL.
Recommendation: Dell is a Hold
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