Reason for CPQ downgraded by ML
March 3,
1998/FOOLWIRE/ -- Compaq Computer Corp. (NYSE: CPQ) fell $1 1/4 to $29 7/8
after Merrill Lynch lowered its rating on the world's largest supplier of
personal computers to "near-term accumulate" from "buy" while maintaining a
"long-term buy" rating. The downgrade came after Compaq's CFO Earl Mason
said at a Merrill Lynch Technology conference that the pricing environment
in January in North America was tougher than expected. Yesterday Compaq
announced dramatic U.S. price reductions across its entire line of Armada
notebooks. Though it deals with different pricing and product dynamics than
Compaq, Dell Computer (Nasdaq: DELL) inched down $2 27/32 to $132 7/8 on the
news. Consumer-oriented PC company Gateway 2000 (NYSE: GTW) also fell $1
3/16 to $40 1/2.
NEW YORK, March 3 (Reuters) - Compaq Computer Corp. told a
Merrill Lynch Technology conference the pricing environment was
somewhat tougher in January, and Merrill said it lowered its
near-term rating on the stock to accumulate from buy.
Earl Mason, Compaq's chief financial officer, gave an
update Monday on first quarter business in January, saying the
pricing environment in North America was slightly tougher than
originally thought, Merrill analyst Lucy Painter said.
The company did not give any change in earnings guidance
for the quarter, but Painter lowered her December 1998 earnings
estimate to $1.80 per share from $1.85 per share.
A Compaq spokesman said on Tuesday the Merrill report was
generally consistent with trends the company saw in January.
Painter maintained her long-term buy rating on Compaq.
"North America's sell-through is quite strong, although the
company noted that the pricing environment is a little tougher
than originally thought," she said in a research note.
Mason also told analysts Japan and Asia remained weak in
January, as expected, Latin America was mixed, and that the
European business was strong and on target with an aggressive
plan, she said.
Painter said in a research report her downgrade was based
on the more aggressive pricing environment in North America.
By mid-morning, Compaq's stock was down 1-5/16 at 29-3/4 in
heavy volume of more than 10 million shares, the most active on
the New York Stock Exchange.
Painter also noted the increased difficulty in forecasting
due to the pending acquisition of Digital Equipment Corp
.
She reduced her first quarter estimate to $0.32 per share,
from $0.37 per share, and lowered her price target to $34-$37
per share form $45 per share.
"We believe Compaq's multiple will be hindered over the
next couple of months and the stock should trade at more of a
discount due to intermediate-term uncertainties," she said. |
