Dell Profit View Raised by BMO

BMO Capital Markets has raised its profit estimates for Dell Inc. (NASDAQ:DELL), a day after the PC maker reported better-than-expected third-quarter profits.

For the third quarter, Texas-based Dell earned $893 million or 49 cents per share, higher than $822 million or 42 cents per share for the year-ago quarter. Excluding items, it earned 54 cents per share, compared to analysts' estimate of 47 cents per share. Quarterly revenue declined to $15.37 billion from $15.39 billion in the same quarter last year

The brokerage raised its fiscal 2012 earnings estimate to $2.16 a share from $2.04 a share and fiscal 2013 earnings view to $2.05 a share from $1.91 a share. Wall Street expects the company to earn $2.01 a share for 2012 and $1.95 a share for 2013, according to analysts polled by Thomson Reuters.

Net, owing to higher assumed margins in addition to a lower tax rate and share count, we are raising our EPS estimate from $1.91 to $2.05, analyst Keith Bachman wrote in a note to clients.

Bachman said Dell is showing positive and steady discipline in not chasing low-margin business and thus helping margins but at a consequence of negatively affecting revenue growth.

For fiscal 2012, the analyst expects company to generate revenue of $62.1 billion, while the Street estimates $62.49 billion. However, for fiscal 2013, Bachman lowered his revenues estimate by almost $730 million to $63.416 billion, versus analyst estimates of $64.28 billion.

More broadly, for Dell's shares to move meaningfully higher, we believe that Dell must generate more significant revenue growth, while also maintaining (approximately) current margins. Given the economic backdrop, and ongoing weakness in client growth, we believe this scenario will be difficult for Dell to realize. Hence, we see the shares as range bound, the analyst said.

Bachman, who has a market perform rating, also raised his price target on Dell stock to $16 from $15. Shares of Dell closed Tuesday's regular trading session at $15.63 on Nasdaq.