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from briefing: COMPUTER (CPQ) 49 1/4. Traders are going to love these numbers, no doubt about it; but we will ask a few questions just for fun. Before the open Wednesday, Compaq (CPQ) reported fourth quarter profits of $0.43 a share. That is a solid six cents above Wall Street expectations. The press release absolutely gushes with enthusiasm about the results. Significantly, CPQ says that the acquisition of Digital Equipment is now accretive, which is indeed an admirable accomplishment. CEO Pfeiffer says "we enter the new year with a great deal of momentum and optimism." Press reports are already extremely upbeat and the stock will likely make a good run today. Before everyone mortgages the house to buy into CPQ, however, a couple of points should be noted. The reported 48% revenue gain is due in large part to the acquisition of Digital. Buy a big company and your revenue will be up. CPQ is not growing the way Dell is. The press release doesn't go to much effort to spell out the composition of revenue growth. Profits, meanwhile, are only up a penny from the year-ago profit of $0.42 per share. So, while the profit figure is getting rave reviews so far, another way to look at it is that even with an accretive impact from Digital, profits are up marginally from a year ago. Too bad that CPQ does not provide "pro-forma" results the way that Internet companies do when acquisitions reduce operating earnings. For CPQ, that might show that profits for the base business (pre-acquisition) were down. Of course, after the year-ago fourth quarter, CPQ ran into real profit problems the next several quarters. Those troubles appear to be past, and CPQ does have business momentum. The stock certainly has been on a tear lately, and in this market environment, these will be considered "blow-out" numbers that generate a lot of attention. To Briefing.com, this says more about the market than CPQ's numbers. CPQ's numbers are good, and the stock will benefit, but they are not quite everything the press reports suggest. |
