Your email address:

Powered by FeedBlitz

Or add to your news reader: Add to My Yahoo! Add to Google

Thursday, November 20, 2008

Dell 3Q:2009 tonight

Don't expect much help from Dell tonight. I'm not discovering America when I suggest revenue is likely to be below consensus. More concerning with Dell, though, is the operating leverage and their reliance on a relatively quick turn cycle to generate margin. A couple of weeks ago I posted an item from a local paper saying Dell was trying to get employees to take unpaid vacations (or lose their jobs). The economy isn't getting better and presumably won't for some time. Dell has an October quarter end which means they had to slog through seasonally weak August, and the September and October shock months. I have no sense of whether visibility has improved in November but it sure doesn't feel that way. The NPD data was somewhat better for October than I'd expected but I think that benefits Dell only in the retail channel where they sell a less profitable sku. Dell is a major player in the supply chain, there's lots of weakness there and it's not coming from HP or Apple.

I would very much like to be wrong about this and see Dell report an okay number so I can short stock higher as I expect a dramatic curtailment of their model is coming over the next couple of quarters. Operating margins could get cut in half. A few days of unpaid vacation isn't going to avert layoffs here. They've got sales infrastructure to support 65 billion of revenue in an industry under constant price pressure that is now shrinking and forecast to decline further over the coming year.

In the past, Dell has garnered a premium multiple due to their anticipated growth and presently their stock is getting a discounted multiple due to their anticipated shrink. The stock at $10.35 trades at 8 * 2010 estimates. My guess is that 2010 estimate is going to get cut in half by the time we get halfway through next year and that Dell is probably trading at closer to 16 * what they'll actually report. The chart is rotten and I can see the stock at $4 (that sounds so crazy I want to delete it).

I'm not sure what the stock is going to do on an anticipated miss. I was going to short stock at $11.75. I was short the stock recently but took it off when I covered all my tech late last week -- these valuations are confusing me in all honesty. Dell looks cheap if you believe the estimates that support it -- I don't, but I'm not the only one as the stock's got a shrinky multiple.

11:40am -- I shorted a little. Just a little. I'll sell more at 11.75 if it gets there... or maybe after the number.

No comments:

Blog Archive