Victor. Re: BEAR, STEARNS CPQ Recommendation. Here is the
complete report. The reason for the reduction seems to
be the "channel dislocation" point he reiterated in
the most recent report.
I hope this clarifies his POV.
HL
BEAR, STEARNS & CO. INC. (3/1/99)
EQUITY RESEARCH-Andy Neff
Compaq Computer Corp. (CPQ-35 3/16) - Buy
Channel Dislocation - Not Demand - Causing Shortfall; Reducing
1Q99, 1999 Estimates; Maintaining 2000 Estimates and Buy Rating
-----------------------------------------------------------------
*** Key Points. Last Friday, Compaq management guided
expectations for the March quarter down because revenues were
below its expectations for late January and early February in
medium-size business in North America and Europe. In addition,
we estimate the devaluation of the Brazilian Real will have a
$0.03-$0.04 negative currency impact. Taking these two factors
into account, we are lowering our 1Q (March quarter) estimate
from $0.33 to $0.29, our 1999 estimate from $1.75 to $1.65.
However, we are maintaining our 2000 estimate of $2.25 as we
believe these are shorter-term issues that will be fixed by next
year.
-----------------------------------------------------------------
EARNINGS Q1 Q2 Q3 Q4
Mar Jun Sep Dec Year P/E
Current 1997 $0.27A $0.30A $0.35A $0.42A $1.34A 26.3x
Current 1998 $0.02A $0.02A $0.08A $0.43A $0.56E 62.8x
Current 1999 $0.29E $0.35E $0.42E $0.60E $1.65E 21.3x
Current 1999 $0.33E $0.36E $0.43E $0.61E $1.75E
Current 2000 $0.47E $0.52E $0.55E $0.71E $2.25E 15.6x
Current 2000 $0.47E $0.52E $0.55E $0.71E $2.25E
-----------------------------------------------------------------
----Why the Shortfall? We believe the main reason for the March
quarter shortfall in revenue in North America and Europe (and in
particular medium-sized businesses) is from the dislocation in
the distribution channel. What we mean by "dislocation" is:
1. Distributors and resellers like Tech Data, Ingram Micro,
Inacom/Vanstar have been experiencing shortfalls in revenue as
incentives have been cut back as the computer systems companies
(Compaq, IBM, and H-P) try to be more competitive with Dell on
price and cost.
2. The major computer systems vendors (again, Compaq, IBM, and
H-P) are also adding direct sales efforts to their indirect sales
channels, which is shifting some other business - which was
primarily based on availability - to the direct sales. In
addition, the distributors/resellers need to transition their
business model to more value-added services to make up for lost
hardware revenue.
* Maintain Buy. We continue to recommend rate Compaq shares
a Buy in view of its low valuation of 16x our 2000 estimate of
$2.25. We believe the company is progressing on its
metamorphosis from the "box company" it was in 1996 into a
systems company that should fully emerge in 2000. The
acquisition of Digital, with which Compaq has made great strides
in integrating, positions Compaq as a company with a leading PC
business based on the Wintel architecture with a high-end systems
business; one could argue that Compaq is comparable to Sun
Microsystems (the systems company), Dell (the PC company) and IBM
(services) rolled into one, which could enable Compaq to "own a
customer." The challenge at this point is focus and execution
which Dell and Sun excel at, but Compaq's management has
demonstrated its ability to achieve against what seemed like
insurmountable odds in the past.
*** Fundamentals Still Intact. We believe fundamental demand is
still strong as (1) the Internet is still the biggest driver as
corporations and individuals continue to spend on Internet
clients and Internet infrastructure (servers, storage,
networking, and software); (2) corporations continue to spend on
IT to lower costs, improve productivity, and leverage off their
information assets through datawarehousing and datamining.
|
