Can Dell Counter H-P Earnings Thunder? (DELL, HPQ)

Next Thursday we’ll get to see earnings out of Dell Inc. (NASDAQ: DELL). The estimates for the turnaround computer giant from First Call are $0.36 EPS on $16.23 billion in revenues.  Next quarter estimates are $0.35 EPS on $15.86 billion in revenues. Estimates for fiscal Jan-2009 are $1.57 EPS on $65.35 billion in revenues.

Analysts have an average price target north of $29.00 on last look, which would imply a 50% expected price gain if the turnaround comes about.  Interestingly enough, we may finally get to see how much of that monster $10 Billion stock buyback the company has used.  As this is less than 4% off of its 52-week lows it hasn’t helped any so far. Dell Inc.’s 52-week trading range is $18.87 to $30.77.

There is one parallel here… Hewlett-Packard (NYSE: HPQ).  Mark Hurd & Co. isn’t seeing its steady and predictable stock rise like it had for 18-months or so, but its shares reacted quite well to it beating earnings and keeping a solid guidance this week.  Our original pairs-trade upon Michael Dell’s return worked like a champ for a while, but ended up looking more like a chump as the stock has lost one-third of its value.  Dell is not a dead company at all and things aren’t falling apart at the seems.  There have been many changes and we expect more to come in 2008 and even 2009.  But there is pressure to perform now that Rollins has been replaced more than a year now.  Even after the large discounting already seen, Wall Street very likely won’t tolerate any deviance from the continued strong H-P trends that were set up.

Jon C. Ogg
February 23, 2008