Things are more interesting for Dell, Inc. than perhaps the former and once again current CEO, Michael Dell would prefer. In today’s Wall Street Journal, you could find a report that “Dell’s Internal Accounting Probe Uncovers Evidence of Misconduct”.
Dell Inc., after a lengthy internal probe of its accounting practices, said it had found evidence of misconduct but didn’t specify what it was.
The computer maker said the investigation also found a number of accounting errors and deficiencies in the financial-control “environment.” Dell stressed that its investigation isn’t complete, however, and said it will delay filing its annual 10-K report with the Securities and Exchange Commission, originally due April 3, past an extension date of April 18.
In the wake of the options backdating feeding frenzy of the past year, additional news of corporate skullduggery large and small has started just bouncing off of me, leaving no meaningful impression, positive or negative. Such was the case with today’s Dell news, particularly given that Dell hasn’t filed a 10-Q with the SEC since June, 2006. They’re now going to be late with their 10-K for the fiscal year ended February 2, 2007, as well.
All rather ho-hum, to be honest.
Until, on the way home Friday evening, I heard a story reported by Jeff Tyler on the always enjoyable Marketplace radio show. (audio available at the link, in RealPlayer format). Excerpt:
JEFF TYLER: Dell has not clarified what kind of “misconduct” has been uncovered. And that’s left stock analysts guessing: How bad are the skeletons in Dell’s closet?
Morningstar analyst Rick Hanna says the company is giving investors little to go on.
RICK HANNA: They haven’t filed a quarterly report for over three quarters now. Think about an analogy. We’re kind of driving in the fog and it’s hard to see very far in front of you, because there’s not a lot of light that’s being shed on the situation.
Morningstar rates management practices at various companies. And Hanna says:
HANNA: They grade relatively poorly, quite frankly. On the Morningstar report card, Dell’s management gets a “D.”
In terms of consumer satisfaction, the company isn’t looking so hot either. A new survey shows Dell is losing PC customers to other brands.
Taken together, Dell might not seem like a very attractive stock. But despite the dark clouds, Morningstar analyst Rick Hanna says the business model is solid and the stock is under-valued.
HANNA: As an example, they’ve probably got close to 5, $6 a share, just in cash, sitting on the books. They’re still incredibly financially healthy. I mean, this is still a very, very solid, very strong company.
On a rating of 1 to 5 stars, Morningstar still gives Dell its strongest recommendation: 5 stars.
Since Dell’s 10-K isn’t actually due until Tuesday, they’re not truly lacking quarterly reports for “over three quarters now”, only two (Q2 2007 ended ≈7/2006 and Q3 2007 ended ≈10/2006). Nevertheless, the market has had earnings releases from the company, and so is not flying completely blind about reported performance. In other words, the analysts, such as Mr. Hanna, have the company’s reported income statements and conference call information to use in providing ratings and advice. It’s not quite like “driving in a fog”, and all due respect to Mr. Hanna, it’s not even like “it’s hard to see very far in front of you”. Perhaps a better analogy would be that it’s hard to determine if the speed bump you just plowed over did any damage to your muffler.
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Dell, Morningstar, valuation, SEC