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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank
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To: Jenna who wrote (37728)5/2/1999 5:32:00 PM
From: Jenna  Read Replies (3) of 120523
 
DLJ raised price targets for AOL..Following the earnings release, DLJ Securities raised revenue, EPS and price target. They expect AOL to generate revenues of $4.7 billion in FY99, up from $4 billion and $6.1 billion in FY2000, up from $5.3 billion. They believe that AOL should be valued much like a blue-chip technology company such as Microsoft or Cisco, both of which trade at a substantial premium to their long-term growth rates (roughly 50%).

Assuming AOL's revenue grows at 25-30% annually, expand gross margin to 50% and operating margin towards 30% and using an average weighted cost of capital of 12.3%, they arrive at a 12-month price target of $200. They feel that the above assumptions are achievable and investors should use any weakness in the stock to add to position.
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