Some good news on a not so good day!
K.
COMPAQ COMPUTER
09:53am EST 18-Dec-97 Williams MacKay Jordan (William C. Conroy, CFA)
Compaq's 4Q Business Remains Strong
* Concerns over Compaq's fourth quarter, and inventory levels specifically, have
risen in recent weeks. We continue to believe that the company has made
dramatic progress reducing inventory on its own shelves and in the channel.
Versus a year ago, weeks of inventory in the channel are down significantly,
as is the level of incentives offered to the channel.
* A rationalization of the full-service dealer network may be in the works.
To improve service, Compaq may reduce the number of dealers qualified to
provide both sales and support, by concentrating the support function within a
smaller universe of dealers. Should the company pursue this strategy,
we think it could both reduce costs and increase the quality of service.
* Sales of computers at or below the $1,000 price point remain good. Mid- and
high-end desktops appear to be stronger at this time. We remain convinced
that the sub-$1,000 machines are profitable (as are the monitors sold with
them) and that they cannibalize sales of very few higher-priced Compaq models.
* Our eps estimates are still $0.83 for the fourth quarter, $2.67 for 1997, and
$3.51 for 1998. Based on those figures, the stock sells at 20.8X and 15.8X,
respectively, 1997 and 1998 earnings per share estimates. Our investment
recommendation remains BUY. |
