Compaq got some press on the WSJ interactive link today, via Smartmoney.Com. Hey Captain - I'm still patiently watching T, broke 30 yesterday. Got any 'ultimate low targets'??
John
Compaq on the Comeback?
By Monica Rivituso
HAS COMPAQ COMPUTER'S (CPQ) stock rebooted?
BREAKOUT?
Data from Aug. 2 to Aug. 8, 2000
Source: DJ Interactive
You have to wonder. After last year's dismal 35.5% downward spiral and this year's meanderings between $24.69 and $33, shares of this Houston-based PC maker have risen 10.9% over the past four days.
On Monday, Compaq shares rose 4% and broke through the symbolic $30 mark — something they haven't done since March. Then Tuesday, more than double the usual number of Compaq shares changed hands on the way to a 3.3% gain. Compaq is now trading at $31, 8.8% off its 52-week high of $34.
"It's [been] oversold" this year, says Art Hogan, chief market analyst at Jefferies & Co. "Everybody's jumping in at this point."
So what happened? As in all things financial or metaphysical, the answer is complicated. First, an article in Barron's over the weekend suggested that PC makers' forays into higher-margin areas like servers and services weren't accurately reflected in their stock prices. Second, Andrew Neff, a Wall Street Journal All-Star analyst from Bear Stearns, told Reuters Monday that Compaq's turnaround was "beginning to gel," helping the stock along on its Monday ride.
Passing that $30 mark Monday was critical, according to Hogan, because once institutional investors saw it break that level, they surmised the stock could rise higher. So what happened? On Tuesday, Compaq shares traded in large blocks, suggesting institutions were buying the stock. "You've got a combination of institutions buying it and traders [and] hedge funds covering [short positions]," says Bob Basel, co-head of listed trading at Salomon Smith Barney.
Technical indicators haven't been the only things looking up for the company lately. On July 25, Compaq reported a respectable second quarter, earning 21 cents a share (in line with the First Call/Thomson Financial consensus estimate) and an 8% increase in revenue to $10.1 billion. More important, the company managed to return its struggling commercial PC business to profitability — one quarter ahead of schedule. The Compaq bulls on Wall Street suggested the results could signal an inflection point for the stock. After the earnings report, at least four analysts upped their ratings on Compaq shares.
Ah, but Compaq has broken hearts before: The stock has staged many minicomebacks this year. Is this time any different? Hard to say. The bulls will argue that after a tumultuous 1999, new management is turning the company around. What's more, Compaq is one of the cheapest PC plays out there, trading at 29 times its fiscal 2000 consensus earnings estimate of $1.08. By contrast, Dell (DELL) and Gateway (GTW) trade respectively at 45 and 32 times their current fiscal year's earnings.
And while it's hard to call at this point, analysts are expecting a strong half for PC makers, based on an expected uptick in sales. That, together with a couple quarters of improvement under Compaq's belt, could work in the stock's favor.
"Compaq shares have been stuck in a trading range for over one year," wrote Prudential Securities' Kimberly Alexy in a report to clients following Compaq's second-quarter report. "However, with two consecutive quarters of solid results and improved growth and profitability trends, we believe the shares may start to respond and finally begin to break out of the range."
So has the company rebooted? For now, the best answer may be that it's in no imminent danger of crashing. |
