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Technology Stocks : Y2K (Year 2000) Stocks: An Investment Discussion
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To: Philip H. Lee who wrote ()10/27/1996 10:29:00 PM
From: Philip H. Lee   of 13949
 
Legg Mason report on Computer Horzions (CHRZ), Part II.

Intermediate-Term Earnings Outlook/Valuation Still Depend on Year 2000 Revenue Ramp-up. While the recent Year 2000 customer announcements discussed below are encouraging, the magnitude of CHRZ's Year 2000 backlog and revenue ramp in the fourth quarter and 1997 still represent the key determinant of the stock's performance over the near term. Investors in CHRZ stock should be prepared for continued price volatility until the company's backlog of Year 2000 projects solidifies and provides improved visiblility on growth prospects for this business over the next two years. Despite these near-term uncertainties, we believe the shares are attractively valued at 26x estimate 1997 EPS due to CHRZ's potential to sustain EPS growth of 30% or better over the next two to three years. We would be opportunistic on any material weakness in the stock to add to investment positions, all else being equal.

Two Year 2000 Contracts Announced in September. In September, CHRZ announced that it received Year 2000 services cnotracts from the Lutheran Brotherhood, a Minneapolis-based insurance and financial services company, and Prudential Insurance. The Lutheran Brotherhood contract covers discovery and impact anaysis of 15 million lines of code. As a result of this work, CHRZ should be well-positioned to assist this customer with the construction and implementation phase of its Year 2000 compliance program. Prudentail awarded CHRZ a multi-year contract to assist with its companywide Year 2000 Program Office, a resource within Prudential for coordinating its Year 2000 compliance activities. Although the value of the contract has not been disclosed, we believe that it is worth several million dollars and positions CHRZ to capture additional construction and implementation projects from Prudential. The company's pipeline of Year 2000 proposals and pilot projects continues to be strong.
(Reed 10/1/96)
The information contained herein has been prepared from sources believed to be reliable but is not guaranteed by us and is not a complete summary or statement of all avaliable data, nor is this to be construed as an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice. From time to time, Legg Mason Wood Walker, Inc. and/or one or more of its employees may have a position in the securities discussed herein.
October 17, 1996
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Philip
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