Make or Break Earnings for Dell (DELL)

Dell Inc. (NASDAQ: DELL) is set to report earnings after the closing bell today.  Thomson Reuters has estimates pegged at $0.28 EPS and $13.18 billion in revenues.  For the coming quarter those estimates are $0.30 EPS and $13.54 billion in revenues.  We have heard whisper numbers of $0.29 EPS and even higher, and the highest estimates look to be $0.30 EPS and just over $13.5 billion in revenues.  The numbers and guidance are going to be closely looked at, perhaps even more than the bulk of the rest of the commentary.

Dell previously noted, “Dell believes a refresh cycle in commercial accounts is more likely to occur in 2010, with IT spending improving first in the United States. The company continues to see pressure in the form of component costs and areas of aggressive pricing in the near term, and continues to take actions to offset these items.”

One of the issues that is adding pressure to technology today is not just a down stock market.  The B of A Merrill Lynch downgrade of the semiconductor sector on restocking and oversupplying is coming to an end.  This was noted in the key downgrades this morning, although it is not a direct reflection of Dell.

The options trading is interesting because options expire tomorrow. That puts all the option value almost entirely on the event rater than on time value.  By my calculation with a static snapshot at Noon EST and without knowing what the options traders’ order books are, options traders seem to be braced for a move of less than $0.50 or about 3%.

The chart is also at an interesting juncture.  Dell just crossed back over its 50-day moving average in recent days, and that level today is $15.51.  The 200-day moving average is all the way down at $12.71.  It is also hard to not  notice how $16.00 has acted as key resistance on four different cycles since the end of September.  Shares had been higher than that in mid-September at $17.00 before many names started to peter out.

While the analyst calls are important to look at ahead of earnings, it is odd that Dell was just this week started (or re-initiated) with a “Buy” rating at Goldman Sachs and with a $19.00 target.  Goldman Sachs has a history of upgrading stocks ahead of a solid earnings report.  The average price target is just above $17.00 if you look at the whole pack of analysts.  And the 52-week trading range is $7.84 to $17.26, but that is well under the brief return to $30.00 in late 2007 before the great bear market started.

The recent launch of Windows 7 is believed to be a big help, particularly after recent Ballmer comments on that notion.  But Dell maintained that the enterprise refresh and upgrade cycle would be in 2010.

JON C. OGG