February 16, 2011 / 6:00 AM / 9 years ago

Dell shares jump on strong profit, solid margins

BANGALORE (Reuters) - Shares of Dell Inc jumped 11 percent on Wednesday, a day after the world’s no. 2 personal computer maker reported strong quarterly profits, allaying the fears of sustainability of its margins.

An employee walks past Dell laptops, which are displayed for sale, at a Dell outlet in Beijing December 13, 2010. REUTERS/Christina Hu

At least seven brokerages raised their price targets on the stock.

The results helped push up the stock of Dell’s bigger rival Hewlett-Packard by more than 2 percent to $49.12 on the New York Stock Exchange.

Dell reported market-topping fourth-quarter margins at 21.5 percent, as component costs dropped, and is hoping to benefit more from the ongoing spending by corporations to replace old technology and equipment.

Dell’s results and increased comfort in pricing discipline should boost its stock price and result in potential re-engagement among value investors, brokerage Stifel Nicolaus said in a note to clients.

The market has often worried that the company’s reliance on low-cost commodity PCs will drag on margins and offer little chance of significant growth.

“While it may be a little premature, Dell appears to be building some sustainability with the gross margin increase the past two quarters, which we believe bodes well for the stock,” BofA Merrill Lynch said in a note.

Dell, which gets most of its revenue from selling PCs, is looking to diversify into the data-center equipment market and the fast-growing mobile space, but faces competition from the likes of IBM, Hewlett-Packard and Apple.

“We continue to believe the corporate PC refresh cycle is still in the early innings, and that IT spending will translate into server deployments,” Needham & Co said in a note.

Dell shares, which have remained nearly flat in the last quarter, were trading up 10 percent, or $1.43, at $15.34 in midday trade on Nasdaq. About 65 million shares changed hands by 1200 ET - more than four times their 10-day moving average volumes.

Following are the price target changes on the stock:

Reporting by Sayantani Ghosh in Bangalore; Editing by Joyjeet Das and Gopakumar Warrier

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