Goldman Sachs Conviction Buy List: Add Dell, Remove H-P (DELL, HPQ)

This morning Goldman Sachs is making a key change to its PC uinverse coverage.  Dell (NASDAQ:DELL) is being added to the Conviction Buy List, and rival Hewlett-Packard (NYSE:HPQ) is being removed from the Conviction Buy List.  Goldman Sachs added Dell to its Buy list back on March 26 with expectations for catalysts over a 12 to 18 month period.  Goldman now sees a series of fairly immediate catalysts that could propel shares to its revised target of $35 (prior $33): 

• The new retail partnerships with Staples and Wal-Mart (with more to come) should add $500M to $1B over the next year in revenues.
• Favorable DRAm costs should keep near-term margins higher than modeled. 
• Dell’s NOV. 12 SEC Filing should unlock share buybacks (Goldman believes around $8 Billion).
• Its tax rate should actually come down.
• For these reasons the 2008 EPS estimates from Goldman Sachs were raised to $1.77 EPS vs $1.74 prior estimate. 
• Goldman also noted that Dell only needs 7% revenue growth to delivery on 20% EPS growth.

Both Dell and H-P were maintained with BUY rating, so this is a relative upgrade this morning.  They expect upside here as well.  It even noted that it expects H-P to beat its $0.82 EPS target for the October quarter with increases to 2008.  This noted that H-P was up 24% since the FEB 8, 2007 add to the Conviction Buy List, versus 6% on the S&P 500.

So this might not be a true a downgrade, but it appears that Goldman Sachs is seeing more upside at Dell over H-P from here.

Jon C. Ogg
October 29, 2007