Observations about LU's quarter:
1. Wide split in Analyst perceptions of the quarter. The bears, led by Lehman (Levy), DLJ (Buck), and Soundview (Do) are projecting gloom - primarily on balance sheet issues (Inventory, receivables). The bulls, led by CSFB (Parmalee), Bernstein (Sagawa), and MSDW (DePuy), suggest a blow out quarter with better than expected sales, eps, and balance sheet improvement.
2. SI posters are probably aware that I believe the bulls are right, based on my independent research as well as my take on the credibility of the specific analysts involved.
3. IMHO There are a few critical targets for LU to hit in the quarter. I believe revenues must be at least $10.2B, EPS at least $0.30, receivables DSOs down at least 5 days, and inventory turns up to at least 4. In a meeting I attended with LU management in early September, LU unequivicably stated it was on track to meet or exceed each of these targets. If this is true, this stock will quickly return to the PE levels of late June/early july ~50 times CY2000 estimates of $1.57 or nearly $80. If it is not true, the stock will likely languish in the $62-68 range until January.
4. The Hi/Fn situation is completely consistent with a LU wide push to reduce inventory levels and has no bearing on LU's sales activity.
5. Product and contract announcements will be made in upcoming weeks - Telecom '99 is Oct 10-15, Earnings will be announced Oct 26, LU's analyst meeting is Nov. 11. The PR deficit vs. NT and CSCO will be more than reversed.
6. I'm off to Telecom '99 in Geneva on Saturday along with 299,999 of my closest friends. This is the largest and most important communications trade show of the year. Luckily my hotel is a mere 50 minute train ride away - many attendees will train it in from Zurich about 2 hours away.
7. We are in this stock in a big way looking for a big lift from the quarter. I expect to get a two bagger from here over the next 12 months. If by some chance the quarter is wishy washy, and I think the odds of this are low based on the enthusiasm I hear in nearly every division of the company and the continued spending in the carrier space, we will pull back to market weight or less. |
