DELL is Now a Sell

Dell Inc. (DELL - Analyst Report) has been making progress on channel strategies, operations, and new products since Michael Dell retook control of the company last year. However, Dell is likely experiencing headwinds from a slowing global economy and its share price has been sliding since reporting disappointing first quarter earnings on August 28th.

Dell is currently trading near its recent low price that translates to a P/E multiple of 7.4X our FY2009 EPS estimate of $1.48, a discount to the industry median as well as to its core competitors, Hewlett-Packard Company (HPQ - Analyst Report) and IBM Corp. (IBM - Analyst Report). Dell appears to be headed back in the direction of cutting prices to gain share at the expense of profitability, its traditional reaction to declining market share. Given the company's history, we do not expect much investor interest in the stock until Dell can demonstrate that this is a profitable strategy.

We therefore have changed our rating on Dell’s shares from a HOLD to a SELL, and would prefer to own HP and IBM. We therefore cut our six-month target price to $8.00, which represents a multiple of 5.4X fiscal 2009 EPS estimate.

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Read the full analyst report on IBM

Read the full analyst report on DELL