Credit Suisse is initiating on Dell (DELL), the world’s second-largest PC vendor, at OUTPERFORM with a $30 target.
The bank still sees plenty to love about DELL, which still reigns as the #1 PC seller in the US:
Dell has some significant market share tailwinds. Dell’s retail initiatives are addressing a large and incremental portion of the market that was unlikely to buy PCs direct, which is particularly important in consumer notebooks. Our analysis suggests that indirect distribution already accounted for 60% of Dell’s incremental PC revenue growth in the April quarter of 2008.
The cost-cutting story is just beginning:
If Dell can continue to lower product costs, grow revenues by just 6% over the next two years, and reduce its operating expense ratio to 11%, then its fiscal 2011 (calendar 2010) operating margins could approach 8%.
Enterprise strategy may be an underappreciated gem:
We believe Dell’s enterprise strategy can provide a critical boost to long-term revenue and margin expansion. Many segments of the enterprise hardware market generate margins that significantly exceed Dell’s corporate average.
Ultimately, Credit Suisse believes the risks are more than factored into Dell’s current stock price:
While Dell’s turnaround initiatives may take several quarters to bear fruit, we believe the long-term opportunity is not yet factored into the share price.
We’re not as sold on Dell’s turnaround as Credit Suisse. And for all the positives CS sees, they still think it will take at least “several quarters” for Dell to realise its potential.
Credit Suisse initiates Dell (DELL) at OUTPERFORM, target $30.
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