Morning Perspective on LEN, DELL, and LULU

There's plenty of news for investors today, but none quite as important as the news surrounding Lennar Corporation (NYSE:LEN), Dell Inc. (NASDAQ:DELL), and Lululemon Athletica Inc. (NASDAQ:LULU). What's the deal, and more important, what's the rest of the story? Keep reading.

Given that it's topped estimates three times in a row, and has beat earnings estimates in eleven of the last twelve quarters, it should come as no real surprise that Lennar Corporation beat forecasts last quarter. What's amazing, however, is how well LEN grew. Profits were up 250%, and revenue grew by 42% on a year-over-year basis. Even more incredible is the backlog of 4,053 homes, which is 87% higher than what it was a year earlier.

The critics continue to nay-say the housing recovery. At this point, however, those doubters really need to start acknowledging the possibility that they're simply being stubborn. Though still not back to housing's glory days of 2006, homebuilders like LEN aren't just a little lucky - the market is improving, and it's been improving since April of 2011. At this point, we can't call it a blip any more.... blips don't last nearly two years. The strength from Lennar Corporation is the real deal.

If you're reading thins, then you probably already know Lululemon Athletica Inc. is poised to open in the red this morning, to the tune of a 7% loss. The culprit? A troubling outlook. As it turns out, LULU really is "only" going to post Q4 sales at the upper end of the range the company offered a few weeks, between $475 million to $480 million. Per the news, last quarter's top line will be pretty close to the $480 million. So what's the problem? Analysts - almost defiant of the numbers the company was suggesting - was expecting $489 million. Heaven forbid a company not reach the analyst community's semi-arbitrary targets.

That being said, it's not like LULU is a buy just because most analysts are misguided and misleading. The stock's still apt to be in bigger-picture trouble, simply because this is a case where the story (fitness fashion, and a popular brand name) became bigger than the stock, and inflated the stock's price beyond reason. Investors have expected near-perfection from Lululemon Athletica for a couple of years now, and with no margin for error, the slightest misstep can send it all crashing down. Problem is, once that pendulum starts to swing bearishly again, it's tough to stop... especially with a forward-looking P/E of 31.7. The stock should have never gotten that expensive to begin with, so now the bears have a corrective move to make. 

Finally, the word on the street is that Dell Inc. is a buyout target, not by a publicly-traded company, but from a private equity firm. As a result, DELL shares are on pace to open 4% higher today after soaring nearly 13% yesterday on the same rumor. It's not a crazy idea, but with a $21 billion price tag, the computer company is within reach for only a few of the biggest PE names.

The question is, does a deal make sense, and is it the best thing for DELL shareholders at this point? It's an interesting possibility. One of the chief concerns with the company is that it's been bleeding revenue as consumers transition from PCs and laptops (where Dell has a major presence) to tablets and smartphones (where Dell doesn't have a presence at all). And, we've actually seen a slight decrease in revenue beginning last year... a decrease that would have been more dramatic had the company not diversified its revenue stream with the acquisition of semi-related product lines. Still, it's a struggle, leaving one to wonder why a private equity name might want to jump on a sinking ship. The answer: Maybe it's not sinking. Or, maybe it can be patched up or parted out under someone else's guidance.

But is that best for shareholders at this time? Yeah, it is.

For better or worse, once companies begin down a path, it's tough to move backwards again, retool, and then take another path. Dell's going down a path that really goes nowhere. Yet, as long as shareholders (and despite the fact that Michael Dell is still the biggest one) are ultimately calling the shots, it's going to be tough to fix what's broken - the right things to do at this point may also be unpopular things to do. Indeed, the right things at this point for Dell Inc. may largely involve divesting some of its recent poor-fit acquisitions, which not only cost money (on paper anyway), but distract from other things.

Or - and this could be an "instead of" as easily as it could be an "in addition to" - a private equity firm may be better positioned to leverage the solid brand name by putting it on a tablet or smartphone. [If Amazon can do it, surely Dell can too.]

Either way, given how tough it will be for Dell to do anything well in its current structure, the best hope for shareholders now really may be a buyout, which will salvage a slowly sinking ship before it takes on too much water.