On Sunday, The Wall Street Journal broke the news (subscription required) that Dell
In other words, Dell, which has long shunned electronics superstores like Best Buy
What will that mean for investors? Dell's previous deal with Wal-Mart
But if anyone should be able to benefit from scale, it's Dell. Unfortunately, the past few years' margin picture shows stagnation in operating profits, even as gross margins have inched higher. Costs on the selling, general, and administrative line haven't done what we'd expect from a leader in lean operations.
FY Ended 2/1/02 |
FY Ended 1/31/03 |
FY Ended 1/30/04 |
FY Ended 1/28/05 |
FY Ended 2/3/06 |
|
---|---|---|---|---|---|
Gross Margin |
17.7% |
17.9% |
18.2% |
18.3% |
18.4% |
Op. Margin |
7.3% |
8.0% |
8.6% |
8.6% |
8.6% |
D&A Margin |
0.8% |
0.6% |
0.6% |
0.7% |
0.7% |
SG&A Margin |
10.2% |
8.6% |
8.6% |
8.7% |
9.0% |
Still, even a faltering business has its price. When I value Dell's discounted cash flows with a model that assumes very conservative growth (in the mid-single-digit range), I come up with a stock worth $32 and change. If Michael Dell can get a real turnaround accomplished, and Dell sees some margin expansion, that would make shares worth an awful lot more.