Harry: CPQ versus Intel x 6 months forward x %. The operative words in my message to Jimbo were "might" and "six months".
My assumption, which I have posted several week ago here, is that between earnings and 23rd February, 1999 CPQ will achieve $50, at least on a spike: that following that there will be an extended period of back-filling and undulations which will carry right through until the July-September period when it moves again, up to and beyond $60. So that is the 6 months I meant. In those six months, CPQ would have moved from about $42-45 to $50-55. This assumption included a good 4th quarter, evidence of accretion from the merger, strong 1st quarter sales, some slackening in the the 2nd and substantial doubts, along the way, about the 3rd: it also assumed growing evidence of a $2-2.50 per share 1999 and a p/e which would expand towards 30. The surge of the last week has not altered those assumptions because I had also said that I thought the break-out towards $45 would begin in the third week of November.
Intel will benefit from all the positive factors affecting CPQ, but a few months in advance of CPQ. Intel will also benefit from a gradual improvement in the Asian economies. Although it is not an intellectually rigorous reason, I also like Intel because of its volatility and liquidity, even when it is in a predominantly upward movement. But on the straight measurement of the price range I think Intel has a chance of greater percentage than CPQ in those six months.
Your assumptions depend on a p/e of 30 for CPQ throughout the period, which I think is unlikely. I think it will become a trailing p/e of 30, but only after we have progressed through well into the 2nd quarter and WS is already looking ahead to year 2000 earnings. The forward looking p/e will be in the 24-28 range.
These assumptions would sink rapidly if CPQ (or Intel) has a blow-out quarter in the 4th or 1st quarters. I actually think that CPQ might have one in the 1st quarter when the accretive effects of the merger, combined with a bump in YK2000 sales will combine. All highly speculative, and highly fluid, while we await results, but that is what makes the market potentially profitable. |
