A 5% premarket rally in Dell (NasdaqGS: DELL) Wednesday following strong quarterly results was set to power tech exchange traded funds as Wall Street analysts cheered the company’s gross margin but expressed concern over weak revenue.
Brean Murray analysts boosted their target price on Dell shares to $19 “on the back of much stronger than anticipated gross margin,” according to a note. The stock “will likely trade up today but could soften through the day as revenue was softer in most areas … Looking forward, we expect the stock to remain somewhat volatile and could likely again be prone to bouts of trading a bit disconnected from ultimate results.”
“Dell delivered another impressive margin quarter, though revenues were modestly below our forecast,” added BMO Capital Markets analysts. “While we called for gross margin to improve … actual gross margin [was]much higher than we expected, driven by lower component costs and supply chain efficiencies.” Gross margin is the percent of revenue a company books as gross profit.
Analysts at Sterne Agee said the beat on gross margin deflected concerns over the natural disasters in Japan and increasing competition. Yet they remain neutral on Dell shares and are hesitant to join the bull bandwagon. The analysts “remain concerned with the company’s longer-term fundamental position and believe the company needs to take more aggressive steps to reinvent itself.”
Investors are worried PC sales are being threatened from tablets. “As the economics of the PC market deteriorate, Dell hopes to transform itself from a maker of commodity boxes into a trusted enterprise solutions provider,” investment researcher Morningstar says in a profile of the company.
PowerShares QQQ (NasdaqGM: QQQ), an ETF tracking the Nasdaq-100 Index, was down 0.2% in premarket trading Wednesday.
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.