Tech Industry

Top brokerages stump for Dell

The PC maker gets a boost as Goldman Sachs and Merrill Lynch recommend shares of the company, encouraged by its quest for market gains.

Dell Computer got a boost Wednesday as a pair of prominent brokerages recommended shares of the PC maker.

Goldman Sachs initiated coverage of Dell, adding the stock to its "recommended" list. Analyst Joe Moore set earnings predictions of 66 cents per share for fiscal 2002 and 90 cents per share for fiscal 2003. He also set a $32 price target for the company.

"We believe that Dell's market share gains are reaccelerating, given recent component price declines, and that Dell's structural position is improving across all of its end markets," Moore wrote in a research note.

Round Rock, Texas-based Dell was up $1.21 to $27.15, a gain of nearly 5 percent, in early-morning trading.

Also Wednesday, Merrill Lynch added the stock to its Focus One list, with a "buy" rating.

Analyst Steve Fortuna said, "Dell has outstanding long-term prospects."

Fortuna, who has issued gloomy predictions about the PC market in general, said Wednesday that Dell's "cost-model advantage is compelling and should enable the company to continue outpacing industry growth by a healthy margin."

The slowing growth could help Dell, Fortuna said, since buyers will become more price-sensitive.

Fortuna was also pleased with the company's strength in the server market, pointing to recent reports that pegged Dell as the leader in U.S. server sales, and gave it the No. 2 spot worldwide.

Fortuna has a $32 price target for Dell and earnings estimates of 90 cents per share for fiscal 2003. First Call consensus is for a 70 cent per-share profit for fiscal 2002 and for an 87 cent per-share profit for fiscal 2003.

Like most tech companies, Dell has been hit by a downturn in the economy; it recently reported its first quarterly revenue decline in 17 years.

But the company did manage to match analysts' lowered expectations for the quarter, recording net income of $462 million, or 17 cents per share, and it was able to maintain gross-margin levels at 18 percent despite an ongoing price war.

Not all analysts are upbeat about Dell's prospects and strategy of trying to price its competitors out of the market. Some analysts have questioned whether Dell's market-share grab will pay off in the long run.

"We think that Dell has set itself on a course to continue to gain share. However, what isn't clear yet is where this takes the company over time," Morgan Stanley analyst Gillian Munson said in a recent research note.