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Earnings Preview: Dell poised for another solid quarter

Dell Computer Corp.'s (Nasdaq: DELL) first-quarter earnings report due out Tuesday should provide the reassurance investors have been looking for since the beginning of the year. After the tepid sales growth recorded last quarter, Dell appears to be back on track.

First Call consensus expects the PC maker to earn 16 cents a share this time around, up from the $305 million, or 11 cents a share, it pocketed in the year-ago period.

While Compaq Computer Corp. (NYSE: CPQ) has struggled in the past few quarters, competitors such as Apple Computer Inc. (Nasdaq: AAPL) and Gateway Inc. (Nasdaq: GTW) have thrived.

Now, it's Dell's turn.

Back in February, Dell shares were battered after it its fourth-quarter earnings report. While it did earn $425 million, or 31 cents a share, the $5.17 billion wasn't quite what Wall Street expected. The $5.17 billion in sales was only a 38 percent improvement compared to the year-ago quarter.

With the bar set so high, Dell shares went into a bit of a tailspin even though it did meet analysts' profit estimates.

Piper Jaffray analyst Ashok Kumar first flagged the fourth quarter concerns, but has reversed his take in the first quarter.

"Our recent checks indicate that Dell is on track to grow units about 15 percent sequentially and 50 percent year-on-year.," Kumar said in a research report. "The company is currently at 70 percent of Compaq's quarterly run rate and if it maintains its current trajectory, it should surpass Compaq in the near future."

Kumar currently rates Dell a "buy" and has set a 12-month target price of $55 a share. He expects sales of about $5.7 billion in the quarter, roughly $200 million more than the consensus estimate.

"However, earnings upside to our consensus estimate of 16 cents a share will be muted about 1 cent to 2 cents due to the large share count of 2.5 billion," said Kumar.

Most analysts are predicting sales growth of between 40 percent to 42 percent this quarter, roughly $5.5 billion.

"There are no problems with Dell this quarter," said Lou Mazzucchelli, an analyst at Gerard Klauer Mattison. "I expect them to be very bullish this quarter. Look for them to gain market share and see a sharp upturn in international sales."

Mazzucchelli also rates Dell a "buy" and has set a 12-month price target of $50 a share.

"As long as they maintain their focus, they'll be fine," he said. "They'll do well until the world changes and the world hasn't changed yet."

Dell shares were trading at a 52-week low of 19 5/16 in January before going on a torrid tear. The stock surged to a high of 55 in February and split 2-for-1 in early March.

Despite all this optimism, analysts are concerned a slowdown in PC spending by the government could dent sales and earnings in the second quarter. Analysts undoubtedly will be looking to Dell for guidance on this and other matters during Tuesday's conference call.

Twenty-four of the 25 analysts following Dell's stock maintain either a "buy" or "strong buy" recommendation.