IB Net Payout Yields Model

Dell Smashed After Hours

Dell (DELL) handily beat earnings estimates but posted revenue numbers that were disappointing sending the stock down 8% in after hours.

Reviewing the numbers, it's difficult to understand what the market wants out of companies today. DELL only has a forward PE of 8 so the expectations should be significantly lower than what the market apparently wants.

DELL reported record cash flow of $2.4B for the quarter and $5.2B over the last four quarters. With an enterprise value around $22B, it only trades at 4x operating cash flow. Wow!

The company has a record cash balance of $16.2B even after buying back $1.1B in stock during the quarter. Though DELL does have over $7B in debt.

DELL remains very attractive on a valuation basis, but it appears to be a value trap where the multiple will never match the cash flow. Too many investors want revenue growth or nothing at all. The market remains incredibly binary.




Results:


  • Revenue in the quarter was $15.7 billion, up 1 percent over last year and 4 percent sequentially.
  • GAAP earnings per share was 48 cents, up 71 percent; non-GAAP EPS was 54 cents, up 69 percent. Vendor settlements resulted in approximately $70 million in benefit in the quarter that increased non-GAAP gross margins 50 basis points and non-GAAP earnings per share by 4 cents.
  • GAAP operating income was $1.1 billion, or 7.3 percent of revenue. Non-GAAP operating income was $1.3 billion, or 8.5 percent of revenue.
  • Cash flow from operations was $2.4 billion for the quarter and $5.2 billion over the last four quarters. Dell ended the quarter with a record high $16.2 billion in cash and investments and repurchased $1.1 billion in stock in the quarter.       



Company Outlook:


Dell is focused on delivering IT solutions that provide both efficiency and flexibility, as the company aligns its business with large and faster growing markets, and creates a broader base of recurring revenue streams with higher profit potential. Based on consistent execution in the first half of the fiscal year, the continued management of lower-margin business and a positive mix shift to Dell intellectual property and higher-valued products, Dell is raising its non-GAAP operating income growth expectation for FY 2012 to 17-23 percent year-over-year from 12-18 percent. Based on strategic decisions to redirect resources from lower- to higher-value solutions and a more uncertain demand environment, the company also is revising its full-year revenue-growth outlook to 1-5 percent from the previous range of 5-9 percent. In the third quarter, Dell expects to see revenue roughly flat relative to Q2, which is in line with seasonality over the past two years.    


Disclosure: No position in DELL. Please review the disclaimer page. 


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