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Technology Stocks : Lucent Technologies (LU)
LU 2.415+1.9%Nov 21 9:30 AM EST
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To: Chuzzlewit who wrote (12022)1/4/2000 3:55:00 PM
From: Mr.Fun  Read Replies (1) of 21876
 
Chuzz,

My CCC calculations are a little different for LU - wondering where we differ. I have A/R DSOs at 89 days (up from 76 4Q98), Inventories including contracts in process at 97 days ( up from 91), and payables at 45 days (up from 43) for a total CCC of 140 vs. 123. NB. The December Q compare for CCC is 137 and the measure peaked in June at 162 by my calculations.

I agree with you that over the long term the best estimate of value is the expected free cash flow. A couple of comments:

1. in the near term, this market has not rewarded rigorous cash flow valuation, as non-sensical assumptions can be used to justify non-sensical valuations. My recent regressions suggest earnings acceleration and top-line growth are the best predictors of near-term stock performance.

2. As you have said, balance sheet metrics are signal to investigate further, NOT proof that there is some problem in the business. My research has satisfied me that the causes of LU's increase in working capital are benign. Since the major increases in working capital in Dec and Mar., LU's revenue growth has accelerated sharply (20.4% in 99 vs. 15.5% in 98) and the balance sheet and operating cashflow have improved decisively.

3. I do expect greatly improved operating cashflow in 00, hence my bullishness. However, I will watch the situation closely, and I am more than willing to change my mind.
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