Dell shares are trading higher today, apparently on the logical theory that Hewlett-Packard‘s decision to consider spinning off the company’s PC business – the largest in the world – will lead to market shares gain for other PC makers, including Dell.
A gleeful Michael Dell has even been tweeting about the situation:- “If HP spins off their PC business….maybe they will call it Compaq?”
- “HP…. They are calling it a separation but it feels like a divorce”
Indeed, you have to wonder if the modest rally in the stocks today might offer an opportunity to get out of the stock.
Indeed, Ticonderoga Securities analyst Brian White this morning launched coverage of Dell with a Sell rating.
“Despite the transformation of Dell’s portfolio that we believe will ultimately have a long-term positive impact on the company, we cannot overlook Dell’s high exposure to the public and consumer markets in a period of growing austerity programs and weakening consumer demand,” White writes in a research note. “At the same time, we have concerns regarding Dell’s surging operating expenses as the company invests in new businesses that we believe will result in incrementally higher operating leverage in a tough environment and could cut more deeply into profits versus the last downturn.”
White concedes that the stock is trading at a historically low P/E multiple, but warns it could be a value trap. “We believe earnings have the potential to surprise on the downside over the next few quarters, especially given the weakening economic environment and government spending cuts that we expect will increasingly impact tech demand in the public market,” he writes.
White’s target on the stock is $9.25.
Dell this morning is up 51 cents, or 3.7%, to $14.27.
