Citi Raises PT On Dell After Solid Earnings

Citi reiterates a Buy rating on DELL DELL shares with a revised target of $17. While revenue growth should decelerate significantly during the next three quarters as corporate PC and server growth returns to more sustainable levels, EPS should continue to grow nicely due to easy gross margin comparisons and solid op ex control. Both P/E and DCF valuation also suggest good value at current levels despite modest long-term revenue growth. While DELL is not our top large cap hardware pick, Citi's target suggests very respectable 18% upside versus last night's after-market price of $14.35. While 3FQ11 revenue of $15.4B was below Citi's est and consensus of $15.7-16.0B, non-GAAP EPS of $0.45 were well above its est and consensus of $0.32 thanks to gross margin. Non-GAAP gross margin of 20.0% was well above our est and consensus of 17.5-17.6% due to sharp declines in component prices, favorable FX, pricing discipline and favorable customer mix. Citi isreducing 4FQ11, FY12 and FY13 revenue ests by 7%, 6% and 5%, respectively, to reflect weaker than expected consumer demand, consumer tablet cannibalization, govt austerity measures, and greater pricing discipline on the part of Dell. However, Citi is raising 4FQ11, FY12 and FY13 EPS ests by 12%, 7% and 7%, respectively to reflect higher gross margin assumptions. Citi now estimate 10-11% EPS growth in FY12 and FY13. Citi has a Buy raing on DELL DELL closed Thursday at $13.66