Auriga USA has raised its profit estimates of PC maker Dell, Inc. (NASDAQ: DELL), saying that the company's margin expansion story will continue even in a more challenging economic environment.
The brokerage has raised its second-quarter proforma earnings estimate by 3 cents to 49 cents a share, while raising revenue forecasts to $15.81 billion from $15.74 billion. Wall Street expects the company to earn 49 cents a share on revenue of $15.76 billion.
"We continue to believe much of Dell's gross margin expansion is supply chain related. In addition, we believe component costs should remain a favorable factor in the near term, with mix fairly neutral, thus we are comfortable moving up our gross margin assumptions for the just completed July quarter," analyst Kevin Hunt wrote in a note to clients.
Hunt also raised his 2012 proforma earnings view of Dell by 7 cents to $1.97 a share. However, he reduced his revenue outlook to $64.1 billion from $64.6 billion. The analyst's revised estimates came in above Wall Street consensus estimate of $1.91 a share on revenue of consensus of $64.02 billion.
The analyst has modestly reduced its assumptions for PC and server revenue in the back half, but included a modest amount of networking revenue from Force10, as that deal recently received regulatory approval.
"While revenue could certainly suffer in a downturn, we believe Dell will likely continue to exceed Street consensus on EPS in such a scenario, and thus would stand out as a solid "safe haven" name to own in a downturn," Hunt said.
Hunt has a "buy" rating and $25 price target on Dell shares, which closed Tuesday's regular trading session at $14.42 on Nasdaq.