Dell is worth $20 despite weak earnings
As the tech company changes its business model to focus on services, it can use its cash to make acquisitions and develop products.
Dell ended the quarter with $17.2 billion in cash and investments. Its major competitors are IBM (IBM) and HP (HPQ) -- the global leader and Dell's rival in the PC market.
Short-term pain as business model changes
The sizable cash and investments could be used for acquisitions and product development, such as the Windows 8 tablet, as Dell changes its business model to focus on services. Its focus on enterprise and service was shown by the fact that Enterprise Solutions and Services revenue grew 2% year over year to $4.5 billion. Dell Services division (including Perot Systems) grew 4% with a 9% increase in order backlogs, storage products grew 24%, and its server and networking grew 2%. Consumer revenue was $3 billion, a 12% decline year over year.
Outlook and guidance
The company expects second-quarter revenues to be in line with historical seasonal trends and be up 2% to 4% from first-quarter levels, which would mean a revenue of $14.7 billion to $15 billion. We believe the revenues, however, may pick up faster than expected as the effect of its recent acquisitions begin to contribute.
Recently, Dell acquired Clerity, Make, Wyse Technologies and SonicWall, providing a foothold in virtual desktops and thin clients as well as networking, security and firewalls. It can also leverage its Force10 acquisition to challenge networking companies such as Cisco and Juniper. All of these companies came with large client base and mature distribution channels that will compliment Dell's sales reach and capabilities. Weakening sales in Europe are a point of worry with Dell reporting EMEA revenue down 1%.
We currently have a $20.48 Trefis price estimate for Dell, which is much higher than current price estimates.
More from Trefis
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Firearms sales surged in 2013, but there are signs that demand is starting to wane.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.