DELL Earnings Play

Read in Briefing.com yesterday:

17-Aug-06 15:33 ET
In Play
Dell: earnings preview (22.62 -0.11) -Update : DELL is scheduled to report Q2 results today after the close, with analysts expecting EPS of $0.22 on revs of $14 bln. Note that on July 21, the co issued downside guidance, saying they see EPS of $0.21-0.23; sees revs of $14 bln. The co said these ests primarily reflect aggressive pricing in a slowing commercial market worldwide. AmTech does not anticipate much deviation from its pre-announced miss in late July. For the October qtr, they anticipate DELL to decline official guidance but express comfort with sequential growth. They are modeling $14.6 bln and $0.26 as they see a seasonal pick-up in the Americas offset by weaker seasonality in Europe and continued pricing pressure. With the stock trading at 16x depressed CY07 EPS, they see more upside than downside at these levels. A.G Edwards notes since Dell has already preannounced its July quarter, July sales and earnings are already known but P.C pricing details will be of interest. The firm says Dell's October quarter operating margin expectations will be important. They have assumed that Dell's operating margins will remain stuck in the 4-5% range for some quarters. The firm believes that Dell plans to regain some share in the consumer space, which is likely to result in ongoing margin pressure, though they think this is the right strategic move.

Since the July 21 downside guidance, DELL had gained significantly. As I do not expect any good news from DELL earnings, the only way for it to go is down. I played Bear Call Spread, selling Aug 22.5 Call and buying Aug 25 Call for $0.55. Also bought Sep 22.5 Put for $1.05 (almost at-the-money).

Today, DELL did opened much lower, dragging along the market somewhat. Closed my Sep 22.5 Put for $1.65 for a profit of 57% over one day. At the moment, I am leaving my Bear Call Spread intact. Hopefully, it expires worthless today.

- PersianCat04 (Millionaire-in-progress)