Barclays Capital has increased its profit forecast for PC maker Dell (NASDAQ:DELL), given prospects for higher gross margins, partially offset by lower revenues.
The brokerage raised its second quarter non-GAAP earnings estimate to 50 cents a share from 44 cents a share and increased its fiscal 2012 earnings view to $1.90 a share from $1.70 a share.
However, the brokerage cut his revenue forecast for second quarter to $15.78 billion from $16.27 billion and fiscal 2012 to $63.5 billion from $64.9 billion, citing secular challenges in PCs and increasing component costs.
Wall Street expects earnings of 44 cents a share on revenue of $16 billion for the second quarter, according to analysts polled by Thomson Reuters.
For fiscal 2012, analysts expect earnings of $1.70 a share on revenue of $64.56 billion.
We acknowledge Dell's margin progress, which is likely to be viewed positively near-term and support shares in the mid to higher teens. That said, the outlook implies margins decline about 2 points for the year's remaining quarters as component prices firm and Dell manages the business for higher growth, analyst Ben Reitzes wrote in a note to clients.
We continue to believe Dell margins may have peaked and balance the solid execution with secular risks in PCs, added Reitzes, who raised his price target on Dell stock to $17 from $15.
Meanwhile, Dell said it expects a mid-single digit sequential revenue growth for its second quarter. The outlook is slightly above normal sequential seasonal growth of 2 percent to 3 percent.
The company also reiterated its fiscal 2012 revenue growth outlook of 5 percent to 9 percent and raised its non-GAAP operating income growth to 12 percent to 18 percent from 6 percent to 12 percent.
We believe Dell's outlook is interesting on 2 fronts. First, the outlook implies a big decline in margins for the remainder of the year-about 2 points. Second the outlook implies a large revenue acceleration throughout the year, reaching double-digit growth by year end, the analyst said.
Our revenue estimates are more conservative given our concerns about the PC market. We believe it will be difficult to reach the revenue target organically unless Dell gets more aggressive in terms of pricing, Reitzes said.
Reitzes has an equal weight rating on Dell stock.
Shares of Dell closed Wednesday's regular trading session at $16.75 on Nasdaq.