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On Apr 4, 2013, Zacks Investment Research downgraded Dell Inc. to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Dell has witnessed some downward estimate revisions after posting mediocre fourth-quarter 2013 results. The company had decided to go private to save itself from public and legal scrutiny which was affecting its profitability. Moreover, due to the impending recession in Europe, the company is not able to generate much business from that region.

On Feb 20, 2013, Dell reported weak fourth-quarter results with revenues and margins taking a big hit. Revenues across the entire business declined over the past year.

The major challenge at the moment is the cannibalization of its PC/notebook business. Moreover, the company is up against cutthroat competition from Hewlett-Packard (HPQ - Analyst Report) and Apple Inc. (AAPL - Analyst Report), as well as a restricted spending environment. The competition faced by the company in the SMB and server segments is also a concern.

Moreover, Dell’s Small & Medium Business (SMB) has not been doing so well in the last few quarters. This segment was down 5.0% in the fourth quarter, mainly attributed to the reduction in the order renewal rate by the SMB client as economic conditions have prompted conservative spending by customers, so they are either deferring their purchases or looking for cheaper alternatives.

Although privatization might have helped Dell move away from public scrutiny, the go-shop period raised new problems for founder Michael Dell. It now appears that the privatization could be delayed because of the interest shown by other parties.

The Zacks Consensus Estimate for 2014 decreased 5.7% to $1.65 per share over the last 60 days. For 2013, most of the estimates were lowered in the last 60 days, which pulled down the Zacks Consensus Estimate by 5.7% to $1.57 per share. Over the last 90 days, estimates for 2014 and 2015 dropped 6.4% and 1.8%, respectively.

Dell operates in the IT industry and is a key player in the PC, server and mobile computing segment.

Other Stocks to Consider

Most of the computing stocks are placed as poorly as Dell. We however recommend Symantec Corp. (SYMC - Analyst Report), which has a Zacks Rank #2 (Buy). Synopsys Inc. (SNPS - Analyst Report), which carries a Zacks Rank #1 (Strong Buy) also looks attractive.

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