There are a number of angles to consider when evaluating today's earnings warning from Motley Fool Stock Advisor selection Dell
I could focus on the fact that analysts were expecting $0.32 per share and that Dell is now forecasting $0.21 to $0.23. I could also pull in the fact that Dell earned $0.41 per share in its second quarter in 2005, the short-term and long-term give and take that is going on with Hewlett-Packard
Just for fun, I could also discuss the nonsense headlines that are out there today, such as "Dell Warning Hits Stocks," and "Stocks Decked by Dell's Profit Warning." I have to admit it would be fun to look at the lack of logic or proof that Dell's warning would weigh on a company such as Healthcare Services Group, but I am far more interested in the fact that Dell provided any guidance at all.
Just two months ago, on its first-quarter earnings conference call, Dell suspended earnings guidance. I thought it was a good move. I like receiving quarterly updates on my holdings and details on business performance, but I find the whole beat-by-a-penny-missed-by-a-penny schtick to be very tiring and entirely non-productive. I have always imagined that company executives who care about the long-term health of their business have similar feelings. Dell should have goals and targets, but there's a lot to be said for keeping those goals internal to the company and making them long-term in nature. If nothing else, today's press release conveys that it's not so easy to quickly end an established practice.
The guidance itself is disappointing. I see no other way to interpret it. However, I must admit I'm far more interested in seeing how the company's cash flow is holding up and its return on invested capital. I suspect both will have dipped, but at $19.50 a share and with a three-to-five-year horizon, I suspect Dell's business will recover and that the company will beat the market. That is by no means a sure thing, but I believe it is more likely than Dell's business being permanently impaired, which is what today's share price indicates.
Dell is also an Inside Value recommendation, as is Intel. Looking for undervalued top-shelf stocks? Finding and recommending them is Inside Value's specialty. Try it out free for 30 days.
At the time of publication, Nathan Parmelee owned shares in Dell, but had no interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.
