Dell Is Worth $30

Finally, we’re seeing some progress at Dell. The company reported fiscal first quarter earnings of 38 cents a share and revenue of $16 billion against consensus forecasts of 34 cents and $15.7 billion.

CEO Michael Dell said, “We are executing on all points of our strategy to drive growth in every product category and in every part of the world.”

The Kelly Letter bought shares of Dell twice, most recently at $20 in January. Shares got as low as $18.13 in April.

I complained on May 8 that Dell still has a product line that’s boring and urged the company to “get beyond the box.”

The response I received from Dell was friendly and so convincing that I wrote a follow-up article on May 12 showing some of the ways that Dell is, in fact, innovating.

It looks like the latter article is closer to the truth, and that the company is finally finding its stride. I’m still hoping for a breakthrough product of some sort, Dell’s iPod moment. It spent $152 million on research and development last quarter, which is 7% higher than it was a year ago, so they’re working on something.

Even without a technology breakthrough, however, the marginal changes taking place at Dell are good enough to keep earnings growing. I expect its results and share price to continue upward in the medium term.

We had confidence to buy at $20 because my analysis showed the shares to be worth $30, making Dell one of the easiest 66-cent dollars on the market. (50-cent dollars are harder to find, but we’re working on one now.) What I assumed back in January was that Dell would improve its 5% growth rate a tad to 6%, and improve its margins from 5.5% to 7% through cost-cutting initiatives and higher-margin products like storage and services.

Those improvements are indeed taking place, and the share price is rising along with them. DELL closed yesterday at $21.81 and rose after hours to almost $24 on its good report.

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