C.S. First Boston says IT spending, more than Compaq merger, key to Hewlett-Packard stock performance in tech notes 2/28/02
02/28/02 08:55 AM
Source: CS First Boston
Hewlett-Packard
(HWP-$20.03-Cap $38.8B-Hold)
Kevin A. McCarthy / Michael R. Walker
HP Hammers Home Merger Points FY02E: $1.20; FY03E: $1.35
* During its semiannual analyst meeting yesterday, HP focused much of its presentation on the attributes of the proposed HP/Compaq merger. HP shareholders will vote on the merger on March 19th. Odds of a positive vote remain 5 points either side of 50-50, in our opinion.
* HP did not alter its analysis of the deal. That is, HP believes the deal would be accretive to earnings in fiscal 2003 and 2004 and the combined company would be a stronger competitor in many key business segments including; services, enterprise systems, storage and PCs. HP estimates 12% upside to the Street’s fiscal 2003 earnings estimate on a pro forma basis and further accretion in 2004.
* HP insisted that the PC business is a good business capable of generating just 3% operating margins but mid 20% ROIC due to improved inventory turns thanks to Compaq’s more direct distribution capabilities.
* HP has put its best-case forward leaving the shareholder the final arbiter. HP’s stock, as well as those stocks of other leading technology suppliers, will be more impacted by the pace of commercial IT spending over the next 6-12 months than by a yea or nay vote on the proposed acquisition, in our opinion. |
