Dell Stocks Hit 4-Year High on Stronger Outlook
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Dell Inc. (DELL) shares broke out to new four-year highs, rising 8 percent, a day after the computer maker surprised Wall Street with an improved outlook for the coming year.
Dell posted a 25 percent increase in third-quarter profit, helped by higher gross margins that reflected lower component costs. The company also said it expects to reach $60 billion in revenue by the end of 2005 — a year ahead of schedule.
Analysts said Dell's comments on the $60 billion revenue target implied it could increase revenue by 18 percent to 20 percent next year. Wall Street's average growth forecast had been 15 percent.
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"That's the key reason that you've seen the stock break out of its (established) pattern," said Charlie Wolf, a Needham & Co. analyst who rates the stock a buy. Wolf still holds a portion of Dell shares he purchased in 1996.
The shares rose 7.9 percent to an intraday high of $40.20 in afternoon Nasdaq (search) trading, up from a Thursday close of $37.25 ahead of the company's release of third-quarter results.
At least two analysts raised their target prices on Dell shares, with Bear Stearns setting a target of $52 by the end of 2005.
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"We think (the target price) is warranted for Dell as a 'poster child' for Darwinian economics with above-market growth," Bear Stearns analyst Andy Neff said of Dell's brutally efficient sales, manufacturing and distribution model.
UBS analyst Ben Reitzes, who issued a bearish outlook on PC industry growth earlier this week, said Dell's results defied what was happening in the PC industry as a whole.
He projects that PC market growth during 2005 will slow to around 8.5 percent, down from close to 12 percent in 2004.
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"We were surprised to hear that (Dell) expects to grow 18 percent to 20 percent in fiscal year 2006 — which would be impressive," Reitzes said in a note to investors following the Dell third-quarter results.
"Our confidence in hitting some pretty good numbers is increasing," Dell Chief Executive Kevin Rollins told analysts during a conference call following the report.
"Now whether that's $58.9 or $59.2 or $61.5 or $60.7, I don't think we know yet," he said referring to his prediction that Dell could reach $60 billion one year ahead of schedule.