Thread:
Interesting commentary from Morgan Stanley - especially regarding DELL.
PC HARDWARE: Q3 PREVIEW--DETAILS
09:29am EDT 2-Oct-97 Morgan Stanley\DW (Meeker/Munson)
DETAILS:
Thursday, October 16, Compaq Computer (CPQ, $75, Outperform) is
expected to report CQ3 earnings and host a conference call before the
open. We look for revenue of $6.0B (up 20% Y/Y), with Y/Y PC unit
sales growing more rapidly than revenue, gross margin of 28% (flat
Q/Q), opex of $1.7B (up 16% Y/Y), a 32% tax rate and EPS of $0.66+.
The First Call mean estimate was $0.68. Compaq's product and sales
momentum continued during CQ3 with positive feedback from our supplier
and channel contacts. CPQ now has an internal revenue target of $50B
in C2000 up from its previous target of $30B.
We expect Compaq to be extremely upbeat on its conference call as
business is good. In addition, we are looking for concrete examples
of the company's potential sales leverage through its build-to-order
and channel assembly programs as well as its recent acquisition of
Tandem_we are big believers in the leverage from the Tandem deal.
In late October, Apple Computer (AAPL, $21, Neutral) is expected to
report CQ3 earnings and host a conference call after the close. We
look for revenue of $1.8B(down 24% Y/Y), gross margin of 20% (flat
Q/Q), opex of $400MM (down 21% Y/Y), no taxes and EPS of ($0.33). The
First Call mean is ($0.14).
AAPL has already indicated that it will lose money in CQ3. We suspect
that our ($0.33) estimate may be a tad conservative...upside will
likely be in opex savings, and a healthy back-to-school season.
However, we do not expect to see a fundamental turnaround on the
revenue front. We suspect that the main focus of AAPL's conference
call will be the management team's efforts to turn the company around.
In addition, we expect the company to discuss some future product
plans and potentially illuminate timing on replacements for key
management team members.
In late October, Gateway 2000 (GTW, Not Rated, $30) is expected to
report CQ3 earnings. The First Call mean estimate is $0.12.
In November, Dell (DELL, Outperform, $99) is expected to report FQ3:98
(Oct.) earnings. We look for revenue of $3.15B (up 56% Y/Y, up 12%
Q/Q), opex of $370MM (up 49% Y/Y, up 13% Q/Q), and EPS of $0.64 (up
63% Y/Y). The First Call mean estimate is $0.65.
DELL shares have been trading like a pack of Energizer Bunnies _ we
still believe that DELL is one of the very best positioned PC
companies, with many opportunities to increase both its top and bottom
lines for investors. The Internet opportunity is big, and the DELL
model is especially well suited to take advantage of the opportunity,
in our view. DELL's mind share is far higher than its market share
(5.7% per IDC) which should provide upside; and geographic expansion
will be a big growth driver for the company. We are still very
impressed with the quality of DELL's management team and feel that it
is very capable of executing an aggressive growth plan. We still rate
shares of DELL Outperform, but oh this stock has moved big. |
