Market Overview

Dell Bounces Back on Goldman Upgrade

Dell Bounces Back on Goldman Upgrade

Shares of Dell (NASDAQ: DELL) traded higher on Monday, up over six percent in early trading. The move brought Dell back above the $10 per share mark, a notable level it had broken below in recent sessions.

The catalyst behind the bullish move may have been an upgrade from analysts at Goldman Sachs.

In a note published Sunday, Goldman upgraded the PC-maker to Buy. The upgrade was aggressive, given that Goldman had previously had a Sell rating on Dell. Goldman's price target is now $13 per share.

In the note, Goldman's analysts argue that the bear case for the stock -- the secular decline of the PC market -- has largely been baked-in at current levels. Further, they like the company's cash balance, which they believe will shield the stock from further downside pressure, and could allow for a leveraged buyout.

Also, with the stock turning in such a poor performance in 2012 (shares are down over 27 percent), Goldman believes that forward earnings estimates have been lowered enough so as to provide upside potential.

Goldman's buy call is all the more notable given the performance of its sell call.

Goldman had downgraded Dell to a Sell way back in December of 2010. Although the call was initially unprofitable, the situation at Dell quickly deteriorated, and shares are down over 30 percent since.

Dell has been facing a secular decline in its business. Since Apple (NASDAQ: AAPL) first unveiled the iPad in 2010, mobile devices have become an increasingly popular way to access the internet.

This has pressured Dell, as demand for its PCs have declined. The company has recognized this shift, and has attempted to focus more on business customers rather than consumers. Still, even with the stated shift in strategy, Dell's shares have fallen as earnings have failed to live up to expectations.

Hedge fund manager Jim Chanos stated earlier in the year that he was shorting shares of Dell, calling the company a value trap.

Chanos also targeted Dell's PC rival Hewlett-Packard (NYSE: HPQ), which was facing similar pressures. H-P's problems may prove to be a bit worse than Dell's, however, as the company recently took a nearly $9 billion accounting charge related to its 2011 purchase of Autonomy.

Shares of Dell traded near $10.20 on Monday.

Posted-In: Long Ideas News Short Ideas Upgrades Hedge Funds Intraday Update Analyst Ratings Movers Best of Benzinga

 

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