Barclays Capital’s Ben Reitzes today raised his estimates for earnings per share for Dell (DELL) and for Tech Data (TECD), arguing the two can benefit from competitive trends, product mix, buybacks, and from rising prices as a consequence of the disastrous floods in Thailand.
Reitzes raised his estimate for Dell for the fiscal Q4 that ended in January to 54 cents from 50 cents, versus the consensus 52 cents. He sees Dell having taken share from Hewlett-Packard (HPQ) last quarter.
Our checks now indicate upside to our previous PC and Server estimates for Dell given the extra week (and transactional nature of that business) as well as evidence of share gains from HP. Our checks for the January quarter indicate Dell gained meaningful share from HP in PCs and servers � coinciding with firmer pricing out of HP after the fall.
Reitzes sees higher component costs offsetting a better revenue mix this quarter, and he raised his EPS estimate to 50 cents from 45, better than the consensus 46 cents. Reitzes thinks a better mix of products sold and some share buybacks will boost profit this year and next. He raised his estimate for the fiscal year that ended in January to $2.16 from $2.12, ahead of the consensus $2.14 per share, and for the current fiscal year, to $2.05 from $1.80, ahead of the consensus $2.04.
For distributor Tech Data, Reitzes thinks the floods in Thailand that have hampered disk drive production have lifted Tech Data’s gross profit margin, leading to EPS for the January-ending fiscal Q4 of perhaps $1.67, better than the $1.49 he was estimating, and ahead of the average $1.63 per share. Reitzes cites some evidence in recent peer reports:
Ingram Micro reported on 2/9 that it had received a 30 bps benefit from favourable HDD pricing which bodes well for TECD. Also, Synnex, which reported on 1/10, noted that benefits from higher HDD pricing was the largest contributor to the company�s 63 bps q/q increase in gross margin.
Reitzes has an Equal Weight rating on both stocks. He raised his price target on Dell shares to $19 from $16, and raised his target on Tech Data to $54 from $48.
As for HP, whose shares he also rates Equal Weight, the company might beat his own low estimates for the fiscal Q1 that ended last month, perhaps reporting more than the $30.2 billion in revenue and EPS of 85 cents a share he’s modeling. (Consensus is $30.8 billion and 87 cents.) But Reitzes is concerned that revenue was weak across the board:
Our checks indicate revenue downside across virtually all segments � PCs, Servers, Printers � on share losses and weak demand, but our EPS estimate has upside nonetheless given the conservative guidance. We also noticed more disciplined pricing from HP during the quarter, almost as if it managed for higher profits and lower revenues this time. The main challenge for HP will be tone around the rest of its FY12 outlook as 2H12 could become more challenging when the EPS estimates move from simply low guidance to more realistic and seasonal expectations that require sound execution.
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