Dell has been an important position for us for the last several months. Unfortunately it has also been a large losing position albeit our only one YTD.
The fundamentals on Dell have been improving all though most analysts are impatient for immediate results.Â Most of the positive data points on Dell server shipments are probably priced into the stock going into the report.Â The shares have been trading up and we’ve seen industry data from IDC and brokerage reports citing Dell strength in the market.
In the last few months there have also been signs of better expense control which could help make the quarterly report a more positive event than the last one.
Our expectation is that the recover of Dell will still require another several quarters to play out.Â There are some major opportunities for upside but we ran our long-term valuation analysis today to arrive at a near-term fair value estimate of $30-34 on the stock.Â It’s a bit above most of the price targets we have seen which hover around the high $20’s.
From a PM standpoint we had a little extra exposure on when the stock was down at $19.Â We have taken that off but maintain a full position into the report though we have no idea what the numbers and the call may hold.Â The Street has been fairly unfriendly to Dell of late so our expectations are fairly low.
Our confidence in stock is based on improving fundamentals, a reengaged management team and most of all outstanding returns on invested capital.
— Kris Tuttle
[R2 Capital currently has a long position in DELL.]