Dell Inc. (DELL), Hewlett-Packard Company (HPQ), Intel Corporation (INTC): Right Time to Short This Giant

In my last few updates on Dell Inc. (NASDAQ:DELL) I have been advising investors to stay away from the stock. Dell is facing a number of different headwinds which make it a highly risky investment. In the last few months, a number of suitors have emerged that want to take the company private. The original bid was made by Michael Dell and Silver Lake but since than many new players have emerged who claim they can do better than even $14 per share. Blackstone Group and Carl Icahn seem to be the two most active challengers to the Silver Lake and Michael Dell partnership. According to recent updates Blackstone has pulled out of the deal, which has triggered a 5% slide in shares. I believe Dell Inc. (NASDAQ:DELL) is an excellent short opportunity at these price levels due to minimum upside and huge downside potential.

PC Segment

While Dell is engaged in deciding the perfect fit for taking itself private, the PC industry continues to go down. According to reports there was a 14% decline in PC shipments during the quarter with both Hewlett-Packard Company (NYSE:HPQ) and Dell reporting falling shipments. Dell has also given a poorer forecast for the year with operating income falling from $3.7 billion to $3 billion in the current fiscal year, a decline of approximately 19%.

During the first quarter of 2013 both HP and Dell Inc. (NASDAQ:DELL) witnessed a significant decline in PC shipments. Hewlett-Packard Company (NYSE:HPQ) saw the steepest decline with a y/y shipment decline of approximately 23%. The company is barely holding on to the top spot in the PC industry with Lenovo breathing down its neck. The decline in Dell sales was less steep at 10% global and 14% in the United States.

Haswell

Analysts are expecting the PC segment to continue its decline throughout 2013. The only ray of hope on the horizon is the new Haswell platform being introduced by Intel Corporation (NASDAQ:INTC). A major drawback of PC is the small battery life as compared to tablets. These Haswell chips are 20 times more power efficient as compared to current designs, and Intel is promising the industry 13 hour battery life.

Haswell is being developed by Intel Corporation (NASDAQ:INTC)’s Oregon team and is expected to hit store shelves by June. The rising popularity of the handheld devices is pushing OEMs to come up with a compromise between tablets and notebooks. The ultimate device that gives consumers an experience of both tablets and PCs is the Ultrabook. A number of new Ultrabooks have hit store shelves this year with Microsoft Corporation (NASDAQ:MSFT)’s Surface one of the most talked products. Haswell will give products from Dell Inc. (NASDAQ:DELL), Hewlett-Packard Company (NYSE:HPQ) and Microsoft to compete with tablets on battery life, which is a primary consumer ‘buy criteria’.

Bottom line

According to recent updates Blackstone has fallen out of the Dell race, citing much of what has been discussed above as the primary reason. According to Blackstone, the PC industry has further deteriorated since the talks started and they no longer consider Dell Inc. (NASDAQ:DELL) a good buy. The company shares have fallen approximately 5% since the Blackstone news broke. I have previously advised investors to stay away from Dell, but with recent developments Dell is an attractive short target.

If we use Hewlett-Packard Company (NYSE:HPQ)’s forward P/E of 5.6x on Dell 2014 consensus EPS estimates we get a target price of $9.3. This shows that at current levels and without a buyout deal, there is a 30% downside to Dell Inc. (NASDAQ:DELL). There is minimum risk for shorts because even if the Silver Lake bid goes through the stock is already trading pretty close to the proposed offer price of $13.65.

The article Right Time to Short This Giant originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.