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Dell gains on upgrade

Dell (Nasdaq: DELL) rebounded 6 percent Friday after an analyst went against the grain and upgraded the stock.

Shares were up 1.38 to 25.63, or 6 percent, up from a 52-week low of 16.25.

While acknowledging that PC demand remains weak, Credit Suisse First Boston's Kevin McCarthy said Dell should be able to flourish amid the turmoil.

McCarthy upgraded Dell to "buy" from "hold," and set a near-term price target of $32 Friday.

"For the first time in nearly two years, we believe current industry trends are combining with Dell's product portfolio to position the computer maker as the clear favorite in the PC group," the analyst said in a research note.

McCarthy is clearly bucking the consensus view. Last month, Lehman Brothers slashed its 2001 earnings numbers for Dell, citing "terrible" PC demand in December and a slowdown in IT spending.

Gateway (NYSE: GTW), Apple (Nasdaq: AAPL), and other PC makers have also been downgraded by analysts.

McCarthy said that while economic weakness and other factors behind last year's PC stock implosion have not fully played out, secular industry trends now favor Dell's business model, increasing his confidence that Dell can hit its earnings and sales targets.

While he is still concerned about Dell's exposure in light of an anticipated slowdown in desktop computing, the company should be able to maintain positive desktop revenue growth through renewed share gain.

The analyst also noted Dell should be the biggest beneficiary of the Windows 2000 upgrade cycle, due to its desktop and low-end server focus

Specifically, Dell's "renowned ability to execute" will be a key asset enabling it to steal share in all business segments. Rock-bottom component prices are also disproportionately helping Dell, McCarthy added. Because Dell orders components when they are needed, rather than stocking in advance, it can take advantage of new lows in the cost of components where other PC makers can't.

After the stock's late-year tumble from 50 to 16, Dell now trades "relatively in line with its peers, even as industry forces have shifted in its favor," McCarthy said. "For this reason, we believe the market currently underestimates Dell's execution advantage in an adverse environment."


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