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Earnings Preview: Dell Inc.

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Dell Inc. is set to report fourth-quarter 2013 results today, Feb 19. Last quarter, the company did not come up with any positive surprise, affected by the downturn in tech spending and PC business. Let’s see how things are shaping prior to this announcement.

Growth Factors This Past Quarter

Amid all the macro uncertainty and the PC market slowdown, Dell opted for a leveraged buyout (LBO). Once the deal is finalized Dell would be transformed from a public company to a private firm.

The LBO agreement was inked between Dell, Microsoft Corp. (MSFT - Free Report) and Silver Lake Partners (a private equity firm). The purchase price of $23.0 billion will be funded with debt. Founder Michael Dell will give up his 15.7% stake and fork out an additional $700.0 million in cash, $2.0 billion will come from Microsoft and $1.0 billion from Silver Lake. The purchase price comes to $13.50 to $13.75 a share. Currently, Dell is trading at $13.27.

The privatization is expected to help the company stay away from public scrutiny so that it can focus more on business growth and profitability. However, the problem related to Dell’s PC business remains. Further, Dell’s position in the server, storage and cloud computing segments is rather weak when compared with technology stalwarts like IBM Corp. (IBM - Free Report) and Hewlett-Packard Co. (HPQ - Free Report) .

Considering the situation, it is hard to predict Dell’s success story, unless the company opts for diversification.

Earnings Whispers?

The Zacks Consensus Estimate for the fourth quarter stands at 39 cents, while that for fiscal 2013 stands at $1.71.

Dell has beaten estimates in three of the last four quarters, with a trailing four-quarter average positive surprise of 2.30%.

Estimate revisions have been minimal, with only one downward estimate revision in the past 60 days. As a result, the Zacks Consensus Estimate has remained unchanged for the fourth quarter as well as for fiscal 2013, over the last 60 days. Over the last 90 days, however, the Zacks Consensus Estimate has gone down 1 cent for the fourth quarter of 2013 and up by 1 cent for fiscal year 2013.

Dell shares carry a Zacks Rank #4 (Sell). The sell rated stocks (#4 and #5) should never be considered going into an earnings announcement. 

Other Stocks To Consider

Here are a few buy-rated stocks (Zacks Ranks #1 and #2) that may be worth considering at this point:

Symantec Corp. (SYMC - Free Report) with a Zacks Rank #1 (Strong Buy).

CA Inc. (CA - Free Report) with a Zacks Rank #2 (Buy).

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