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Monday, August 21, 2006

How Does Dell Get Five Stars? DELL

Morningstar gives Dell a "Five Star" rating. The description of what makes a stock worth the honor is right there at the Morningstar website. The analyst on the stock also views Dell as a buy at $30.10 and a sell at $48.90. Dell currently trades at $20.

Someone will need to explain the Morningstar rating to me as if I were a child.

The company has just recalled over four million computers for battery problems. Sony will probably absorb the cost for this because they made the batteries, but it is not good for Dell's reputation. Dell has admitted that it has customer relations problems and that its pricing structure is too complex. The company has also announced that it is looking into its revenue recognition practices.

Dell's profits fell 51% last week to $502 million.

Analysts need to show stock price targets that they can defend. Reading the Morningstar description of Dell does not offer much justification for the price targets. Dell's high for the year is $36.86. The stock would have to rise 68% to get to back to that level.

The most ridiculous number in the Morningstar analsysis is that investors should consider selling the stock at $48.90. Dell's stock has not been at that level since the middle of the year 2000. And, it fell with the Nasdaq.

The management at Morningstar needs to have a closer look at how it assigns its ratings and its price targets.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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