Over the next week 24/7 Wall St. will set mid-year price targets (June, 30, 2007) for the sixty most widely traded stocks. These targets will be based on past price performance, industry activity, forward projections of financial performance, outside analyst opinions, and research conducted for doing past articles on these firms. The price targets assume flat markets over the next six months. In other words, if the Nasdaq moved up 25% between now and mid-year, the target share price targets would probably be too low. If the market moved down by 20%, they would probably be too high.
Dell (DELL). Dell’s shares will probably not go anywhere over the next two quarters.That may be a relief to investors who watched the big PC maker’s shares fall 35% over the last two years.
Eighty percent of Dell’s sales are in the corporate market, which is not expected to grow as fast as the consumer PC sector. The release of Vista and Office 2007 should give some amount of boost to all PC companies, but Dell’s has greater competition from a revived Hewlett-Packard and companies like Lenovo and Acer would like a bigger piece of Dell’s 17% global share.
Dell’s shares were recently cut to "underweight" from "neutral" by JP Morgan on concerns that margins could be poor in 2007. The bank added that price concessions from AMD may not last long. But, some analysts see the situation differently. Dell may focus on improved profits per PC. But, that could cause a fall in unit sales. Either way, it may be a difficult year.
The market does have some Dell bulls. Perhaps first among them is Rick Hanna at Morningstar. His view of Dell’s near-term success is that it will come overseas: "Overall, we project non-U.S. revenue will grow at twice the rate and represent a larger percentage than U.S. revenue for Dell over the next five years." Morningstar gives Dell its highest rating, Five Stars, and has a Fair Value Estimate of $34 on the shares, $8 above where they are now. But, HP is likely to do what it can to gain sales in the same overseas markets and Lenovo and Acer are not going to want to give up their positions in critical Asia markets.
Factors that could take the shares above forecast: If Dell’s next two quarters do show robust international sales, Wall St.’s perception of the company could turn positive quickly. Many investors want to see CEO Rollins leave. If he does, the stock might take a run.
Factors that could push the shares below forecasts: Almost any continuations of news from Dell that sounds like what has been coming from the company in the last year could push the shares toward $20. That could include bad news about the government’s investigation into Dell’s revenue policies, continued slow sales, or a drop in gross margins.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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