This is the ML one discussed earlier in the thread...
COMPAQ COMPUTER: "Houston, There is No Problem"
08:29am EST 28-Nov-97 Merrill Lynch (L.Painter )
Investment Highlights:
o Stock still appears to be the best value in the group, trading at 16x our
calendar 1998 estimate of $4.15 vs. the group average of 18x.
o Believe the stock will show marked appreciation over the next few months,
as estimates are refined upward and the market share/gross margin story
materializes further.
o Reiterate our Buy investment opinion on the shares and $100 price
objective.
Fundamental Highlights:
o We provide an update on the inventory situation on a worldwide basis,
which apparently has created some confusion this week.
o Seasonally, the fourth quarter has, for many years, represented a time of
"high-anxiety" for the PC stocks, largely related to fear over the consumer
selling season and product transitions.
o Fundamentally, business trends remain very positive--broadbased strength
exists across product categories and geographies.
o Reminder-exposure to emerging markets is quite small from both a revenue
and profit standpoint (11% of revenue).
Update on Inventory/BTO Situation
There appears to be some recent worry over the channel inventory situation for
Compaq, which frankly, we are baffled by. There is nothing about the current
inventory situation which we find disheartening and the continued roll-out of
Build-To-Order is progressing on plan and very successfully. In short, THERE
ARE NO PROBLEMS OR CHANGES IN THE INVENTORY SITUATION WHICH CAUSES US ALARM.
Details
We provide a detailed picture of channel inventory positions (understanding
that the situation is quite dynamic, particularly during such a high volume
quarter): Worldwide channel inventory is now 4 weeks, North America is 5-6
weeks, Europe is 2 weeks, Latin America is 2 weeks, and Asia/Pac Rim is 6-ish
weeks.
North America: Upon the launch of the BTO system, CPQ's goal for North
American channel inventory was 2 weeks by year end which still appears very
achievable and with which management remains very comfortable. Remember, that
North American channel inventory currently reflects the heavy consumer products
selling season, a very high volume product line with the shortest life cycles.
Most importantly, those product have not yet moved to the BTO plan, and
therefore it makes sense that CPQ would need to aggressively and continuously
fill the channel during the height of the selling season. The sell through of
the consumer products has remained exceptional across the board.
Europe: Two weeks is far too low and CPQ is currently re-allocating products
from Asia to Europe to fulfill growing demand.
Asia/Pac and Latin America: Again, two weeks is too low for L.A. and
reallocation has begun in this region as well. Asia/Pac Rim is a bit high but
the company is aggressively moving product to Europe.
Build-To-Order Update
So far, the roll-out of BTO in North America is progressing on plan and very
successfully. All corporate desktops and portables have been moved to build-to-
order. Servers and workstations are expected to move to BTO within the next 3-
4 weeks, and the consumer products are expected to move to BTO in December (for
the January product launch). The rollout of BTO on a global basis will
continue throughout next year. |
