Dell shares were trading higher Friday after the company reported stronger-than-expected earnings late Thursday and were upgraded by Merrill Lynch to buy from netural.
Dell shares gained nearly 7 percent in early morning trading. Shares of the Round Rock, Texas-based company have been under pressure for some time and lost some 7 percent during the first quarter to close at $18.63 at the end of April.
"We've got growth back to the highest level in a couple of years," Dell Chief Financial Officer Donald Carty said, in an interview with CNBC's "Squawk Box." "We've made some progress on the cost front as well, and you're starting to see it in the earnings."
Merrill Lynch analyst Jeff Fidacaro expects investors will begin to recognize that the turnaround plan is starting to take hold and will help push Dell shares as high as $27 within the next 12 months.
"Dell is beginning to see revenue growth reignite owing to its growth initiatives and expansion into the retail and indirect channel, which was reflected in market share gains in fiscal 2009," Fidacaro said, in a research note. He expects Dell's shares to react positively in the near-term to slight incremental margin improvements through the next few quarters.
Dell's net income in the three months ended May 2 rose to $784 million, or 38 cents a share, from $759 million, or 33 cents a share, a year earlier. Revenue was $16 billion, up 9 percent from a year earlier.
A consensus estimate compiled by Thomson Financial put Dell's earnings at 34 cents a share on revenue of $15.683 billion.
Dell said product shipments increased 22 percent in the quarter, driven by a 43 percent surge in unit sales of laptop computers.
"The upside, I think, was mainly from their share repurchases and slightly higher revenue," said Shannon Cross, an analyst with Cross Research. "The gross margin is in line."
"Dell's cost cutting is starting to benefit margins," Cross said. "Now the company needs to show that they can maintain and gain market share beyond just benefiting from channel fill of their retail partners."
Late Thursday, Carty told reporters on a conference call that he expects the company to keep growing faster than the overall industry and enjoy growing revenue, profitability and cash flow.
"We see $3 million of cost opportunity," Carty said Friday, on "Squawk Box." "Over the next couple of years that's going to actually favorably impact our costs."
Dell also cut 3,700 jobs in the just-reported quarter.
The company, which in recent quarters has made a big push into the retail sector by selling computers through retailers, said consumer PC units shipped in the quarter grew at more than two times the industry rate. Volume is up 73% in the so-called brick countries alone, Carty said.
"We are executing on all points of our strategy to drive growth in every product category and in every part of the world," Chairman and Chief Executive Michael Dell said in a statement.
Having fallen behind Hewlett-Packard in PC sales, the world's second-largest computer maker has been working on turning around its operations, focusing on notebook computers and emerging markets as well as growing both consumer and business lines.
The company is also cutting costs, including thousands of jobs, to stay competitive.
- Reuters contributed to this report.