Dell Earnings: An Early Look

Earnings season is in full swing, with huge numbers of companies having already given their latest numbers to investors, and Dell (DELL.DL) is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise.

Dell has attracted huge amounts of attention lately, as a leveraged buyout bid is on the table and shareholders try to assess whether the company could survive the decline in the PC industry if it remains a public company. Let's take an early look at what's been happening with Dell over the past quarter and what we're likely to see in its quarterly report next Tuesday.

Stats on Dell

Source: Yahoo! Finance.

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Dell hasn't gotten much love from analysts lately. Although they've only cut their estimates for the current quarter by $0.01 per share over the past three months, they've been more cautious about fiscal 2014 estimates, with declines of nearly $0.10. Because of the proposed takeover, however, the stock has rebounded sharply from its worst levels, rising 45% since mid-November.

The PC business has been slow for a long time, and Dell has been a big victim of the move toward mobile devices. PC shipments are down only slightly, but as a proportion of total computing devices, PCs are losing market share quickly. That has created a great divide between PC-heavy companies Dell and Hewlett-Packard (HPQ -0.46%) and mobile-oriented Apple (AAPL -0.35%), with Apple proclaiming the death of the PC and basking in the glow of demand for tablets and smartphones.

In the past couple of weeks, though, Dell's future business prospects have gotten lost in the noise of the proposed going-private deal led by founder Michael Dell and private-equity company Silver Lake Partners. The deal includes debt financing from Microsoft (MSFT 1.82%), which obviously has a stake in ensuring that PC sales continue as long as possible.

Opposition to the deal has arisen from several corners, with investors starting to wonder if the deal doesn't reflect Dell's full value. Moreover, Dell bondholders face a much more highly leveraged entity after the buyout, increasing the risk level of their investment.

This quarter's report will be interesting because paradoxically, those who support a buyout should root for bad results. If the company performs well, it will only bolster the opposition's case that Silver Lake is trying to take advantage of a short-term decline in the stock to grab the company at a bargain. If it does badly, though, shareholders may well grasp at the opportunity to get out while the getting's good.

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