El: With regard to the COMPAQ earnings table
provided by DRRISK and set out below, let us
assume that it represents the worst case scenario.
For the sake of compromise let us assume that
FY 99 will be $1.50. By December, 1999 using
a trailing p/e of 25 the share price would be
$37 1/2, which is closer to your target than mine.
However, as you know the market looks forward at
least six months if not twelve. Traditionally
it looks forward postively in December of each year.
This year there will be a new CEO, an AV spin-off,
efficiencies coming through re-organisation,
progressively smaller inventory, possibly a sales
bump from YK2000 compliance business and greatly
expanded revenues and profits from services and
storage and high-end hardware. Analysts at that
time will be citing forward p/e relative to
Y2000 earnings.
If we use the same p/e of 25 and posit that Y2000
will be $2.50 then the appropriate price will be
$75 in Decemebr, 1999. My target of $55 is
conservative and allows for a lower p/e or a
lower Y2000 earnings. (I think 1999 will be
higher than $1.50).
It is probable, in my view, that Y2000 will be closer
to $3.00 and while the forward p/e may fluctuate between
17 and 30 at any given moment, I think that it is highly
likely that in December1999 it will spike towards the
higher end of the range. So a p/e of 28 on assumed
Y2000 earnings of $3.00 would give a share price of
$84 in Decemebr 1999 bringing it very close to
Michael's target of $99 in 99.
This is not to make you splutter out your cocoa
- just a demonstration of why it is impossible for
me to be cruel enough to accept your wager. For it to
be a genuine wager, there must be genuine risk of my
being wrong.
Consensus EPS Trend Qtr(6/99) Qtr(9/99) FY(12/99) FY(12/00)
Current Estimate $0.25 $0.32 $1.18 $1.78
7 days ago $0.25 $0.32 $1.18 $1.78
30 days ago $0.26 $0.32 $1.21 $1.81
60 days ago $0.39 $0.45 $1.74 $2.26
90 days ago $0.40 $0.45 $1.81 $1.78
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