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S&P Keeps Dell at Strong Buy, Apple at Hold

Dell (DELL): Reiterates 5 STARS (strong buy)

Analyst: Megan Graham-Hackett

January-quarter earnings per share of 37 cents, vs. 29 cents is a penny above our estimate. We think efforts to hold gross margin, which beat our forecast by 30 basis points, caused Dell to post revenue just 0.3% below our model as consumer sales slowed. We were encouraged by sales mix and strong growth in key areas such as international and servers/storage. With potential share gains from Hewlett-Packard, we think Dell's April-quarter $13.4 billion revenue guidance may be conservative. We are upping our fiscal 2006 (ending January) earnings per share estimate 2 cents to $1.58 and view Dell as undervalued, below our discounted-cash-flow-based 12-month target price of $49.

Apple (AAPL): Reiterates 3 STARS (hold)

Analyst: Megan Graham-Hackett

Apple announced a 2-for-1 stock split for holders of record Feb. 18. The shares are to begin to trade on a split-adjusted basis on Feb. 28. Given the stock's appreciation, we had expected such a split but we believe nothing in Apple's story has fundamentally changed. We remain concerned about the stock regarding iPod sales growth potentially peaking, and valuation, as the shares trade at a premium to peers on both an enterprise value/sales basis and p-e basis. However, we think the opportunity to leverage iPod success into new markets make the shares worth holding.

eBay (EBAY): Reiterates 3 STARS (hold)

Analyst: Scott Kessler

At its analyst conference, eBay highlighted opportunities for its three major businesses: eBay in the U.S., eBay International, and PayPal. eBay's goal is to grow faster than e-commerce across all of these areas and all its geographies. Although we believe several countries in Asia and Europe, and PayPal, offer notable growth potential, we see U.S. and Germany businesses as more mature and facing challenges. We also think recently announced customer support offerings could hurt operating margins. Our 2005 earnings per share estimate remains $1.55 and our 12-month target price stays $96.

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