Dell (DELL) has had a rough go of it over the past several years as the personal computer market has become more commoditized and its pesky rivals have eaten its market share. For a while, it looked like the company might go the way of the dinosaur, but recent results say otherwise. Throw in a nice chart pattern and all of a sudden this stock is looking like a “Buy.”
Margins Make For Great Quarter
The company reported strong 2012 fiscal first-quarter results driven by excellent gross margins. Dell earned 55 cents per share, well above the consensus estimate of 43 cents. Revenues actually missed slightly, but the huge gross margins allowed each dollar of revenue to count more. Management increased its full-year operating income guidance to 12-18% from 6-12%. This could prove to be conservative as the company just registered 74% growth in that metric.
CFO Brian Gladden said, “We have built an $18 billion enterprise solutions and services business with exciting growth potential and our execution in the core client business continues to be very good. We are positioned to continue delivering value to our customers and investors.”
I haven’t heard many analysts talk about Dell’s revenues from its growth markets, which include the emerging markets and the BRIC countries. Sales in China rose 22% and revenues in India rose a solid 28% during the quarter. It’s clear that these markets will provide the profit growth that investors are looking for going forward.
The Chart
Technically, Dell is looking strong, especially after its earnings-related pop. The stock is within pennies of a 52-week high and staged a nice breakout on big volume due to its earnings beat. Its 50-day moving average at $15.24 should provide support should the stock correct a bit. Slightly below that there is even stronger support in the $14.50-$15.00 area. The path of least resistance is looking higher for the long-suffering shareholders of Dell. Another few quarters like this and the stock could break $20.
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