BREAKING UP IS HARD TO DO: It's been a five-year-plus relationship, but
Deutsche Morgan Grenfell Inc. computer analyst Michael Kwatinetz has ditched
Compaq Computer Corp. (NYSE, CPQ). He recently removed his ''buy''
recommendation and instead rates Compaq an ''accumulate.''
''Compaq has been very, very good to me,'' Kwatinetz writes in an angst-ridden
note to clients, noting that the Texas-based computer maker's stock has
appreciated roughly 18-fold since he first began pushing it in late 1992 and never
wavered.
Kwatinetz explains the downgrade mostly by the risks associated with Compaq's
acquisition of Digital Equipment Corp. (NYSE, DEC), which is expected to close
later in the year.
''Its strategy appears sound, but execution risks are high,'' he says.
Compaq, however, still has its fans.
One is Richard S. Chu, an analyst with Cowen & Co. in Boston. ''I'm a strong
believer that brand and logistics will drive consolidation'' in the computer industry,
Chu says. ''I think people underestimate what Digital brings to the party.''
Chu also says Compaq management will be a party pooper by taking an ax to
Digital's workforce. He reckons the company can cut 7,000 of Digital's 53,000
employees and save $500 million in the process. That alone could boost his
estimates of Compaq's 1999 earnings by 11 percent.
Says Chu, who rates Compaq a ''strong buy'': ''They should have plenty of
opportunities to cut costs.''
Cold to be sure. But if Chu's guess on Compaq's tough love is right, Kwatinetz may
wish he never walked out on his longtime dance partner. From SJ Mercury News. |
