Dell's declines lead UBS analyst to raise stock's rating

The market hasn't been kind to Dell Inc. of late, with its stock down almost 26% over the last two months, but UBS analyst Maynard Um believes that the recent sell-off has created an opportunity for the investors interested in the world's No. 3 PC company.

On Thursday, Um raised his rating on Dell's stock to buy from neutral, saying he continues to believe Dell will benefit from an increase in corporate PC spending that should start in the second half of this year and continue into 2011. Um also said that Dell is less likely to suffer sales declines from softness in the consumer PC market than other computer makers.

Um's upgrade comes a week after Dell (DELL 12.01, -0.05, -0.42%) met with financial analysts to say the company is focused on improving its earnings and diversifying its business operations. Um is the only analyst to raise his rating on Dell's stock over the last few months.

Since Dell's analyst meeting, the company's shares have fallen almost 15%, which Um said has created a "compelling opportunity" for the company's stock.

Um said "market growth dynamics", such as strong demand from Dell's corporate customer base, remains strong and should help Dell going into next year.

"Concern over PC industry softness [is] being driven more by the consumer rather than the enterprise," Um said, in a research note. "Enterprise upgrades are becoming more of a necessity."

Um said Dell, with only 22% of its business coming from the consumer market, and just 20% from Europe, "should be better positioned and buffered against any potential consumer weakness."

Despite Um's upgrade, investors didn't jump on the Dell bandwagon Thursday. The company's stock remained near its breakeven point of $12.06 a share as the overall tech sector slumped along with the broader market.

Even though Um was mostly upbeat about Dell's potential, he still remained a bit conservative about the company. Um cut his price target on Dell's stock to $15.50 a share from $17.50, and also lowered his 2011 fiscal-year forecast on Dell to a profit of $1.24 a share on $62.7 billion in revenue from an earlier forecast of $1.28 a share and sales of $63.1 billion.

Um said he lowered his forecasts on Dell to account for possible share loss in the PC marker and limited gross-margin growth.