Compaq Analyst Gets Bearish
While the Apple quarter is a no-brainer, Compaq's (CPQ:NYSE) future is a bit more uncertain. Piper Jaffray analyst Ashok Kumar, never content to only look at the present, lowered his earnings estimates and revenue numbers for Compaq's fourth quarter, which ends in December.
In a research note to clients, Kumar said short-term revenue estimates were unrealistic due to DEC integration issues. Compaq finalized its $9 billion acquisition of DEC this past June. Kumar, who rates the stock a buy, is already on the low end of the analyst spectrum with an earnings estimate for Compaq's third quarter -- which will be announced Wednesday morning before the open -- of 5 cents, a penny below analysts' consensus. (Piper Jaffray has had no underwriting relationship with Compaq.)
This downward earnings revision sent the Philadelphia Stock Exchange's Computer Box Maker Index down 3% to 138.52 Tuesday afternoon. Compaq closed Tuesday off 10% and fell near its 52-week low to 24 1/2. Not exactly the good run-up before third-quarter earnings that Compaq was hoping for.
Looking past Wednesday's earnings announcement, Kumar reduced his fourth-quarter revenue and EPS estimate from $11 billion and 34 cents a share to $10.5 billion and 30 cents a share, respectively. "With the weakening macro environment, it's unrealistic to expect the company to grow 25% sequentially" from the third quarter. Kumar believes Compaq revenue will reach only $9 billion in the third quarter, $300 million below analysts' estimates.
Compaq's resident ax, Dan Niles of BancAmerica Robertson Stephens, agrees that the DEC integration will impact third-quarter earnings. "DEC is on a different fiscal calendar than Compaq, and DEC's revenue is usually down 10% to 20% in the third quarter," says Niles, who adds that analysts should have already calculated for this regular drop-off. TSC wrote about the disparity between the two fiscal calendars last week. (Robbie Stevens hasn't participated in any of Compaq's recent offerings.)
Niles, who still rates the stock a buy with a price target of 40, sees Compaq earning 8 cents a share on $9 billion in revenue. What about questions over Compaq's controversial inventory level? Niles believes it's back to where it was at the end of the company's second quarter back in June. Niles says it was at 3 1/2 weeks back in June, but then fell to 2 1/2 weeks or so in August. "That's when the company realized it was taking too long to get their product to retailers and pushed back up its inventory to June levels," he explains.
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