Merrill, ''Operational Excellence''
by: skeptically 07/26/01 10:01 am
Msg: 246457 of 246458
26 July 2001
Steven M. Fortuna
First Vice President
Michael Hillmeyer
Melanie Hollands
Compaq Computer Corp
Demonstrating Operational Excellence &
Discipline
ACCUMULATE
Long Term
ACCUMULATE Reason for Report: Analysis of Earnings
Highlights:
• Despite an exceptionally weak environment, we are
very impressed with the operational excellence and
discipline that Compaq is demonstrating. Last
night Compaq reported 2Q01 revenue of $8.45
billion (down 8.1% sequentially and down 16.5%
yr/yr) and EPS of $0.04, in line with the company’s
recent preannouncement.
• Compaq reduced its inventory levels by $700
million in the June quarter ($300 million company
owned and $400 million in the channel) to bring
the total reduction so far this year to $1 billion.
The company plans to reduce inventory by a
further $300 million in the September quarter
($100 million owned and the remainder in the
channel). Compaq also exhibited impressive cost
controls having cut 5100 jobs year-to-date of the
planned 8500.
• We believe Compaq is doing the correct thing by
accelerating its efficiency improvements. The
strategy is clear: With demand very weak, and
revenue going to be weak, why not take the
opportunity to reduce inventory at a time when the
company will not be penalized for it while working
very hard on the cost side to drive earnings. Then
when the environment improves, Compaq would
have a better operating cost structure and lower
inventory levels, which should generate significant
upside leverage. We reiterate our Accumulate
rating on Compaq shares with a $17 price objective
based on 26x our $0.65 EPS forecast for next year.
Price: $14.12
12 Month Price Objective: $17
Estimates (Dec) 2000A 2001E 2002E
EPS: $0.96 $0.32 $0.65
P/E: 14.7x 44.1x 21.7x
EPS Change (YoY): -66.7% 103.1%
Consensus EPS: $0.41 $0.72
(First Call: 18-Jul-2001)
Q2 EPS (Sep): $0.30 $0.07
Cash Flow/Share: $1.11 $0.85 $1.25
Price/Cash Flow: 12.7x 16.6x 11.3x
Dividend Rate: $0.08 $0.08 $0.08
Dividend Yield: 0.6% 0.6% 0.6%
Opinion & Financial Data
Investment Opinion: B-2-2-7
Mkt. Value / Shares Outstanding (mn): $23,834.6 / 1,688
Book Value/Share (Jun-2000): $6.94
Price/Book Ratio: 2.0x
ROE 2001E Average: 10.0%
LT Liability % of Capital: 0.0%
Est. 5 Year EPS Growth: 15.0%
Next 5 Year Dividend Growth: NA
Stock Data
52-Week Range: $35.00-$13.20
Symbol / Exchange: CPQ / NYSE
Options: Chicago
Institutional Ownership-Vickers: 57.3%
Brokers Covering (First Call): 21 |
