I have not been able to verify your revised H&Q numbers, and there is no indication of the new numbers on First Call.
Nevertheless, revised estimates of .64 for FY 98 is close enough to the mark for now. However, a 23% gain in the following year to .79 is silly. It will be a long time before WIND only gains EPS 23% year-on-year.
As you know, I really don't like to make too much of my actual projections, for fear of raising the bar too high. Management needs slack to invest and grow the company without the earnings bar raised to intolerable heights. (I like Mark Murphy's trick about adding R&D to earnings to formally give management credit for investing in the company.) It is permissible to discuss projections, but only if everyone recognizes that the company, is expected to under-perform my projections 50% of the time, not because of inadequacies of the company but because of inadequacies of my projections. As long as the Street takes it out on the company, analysts for brokers will continue to be unduly conservative.
I try to model the future performance of the company as to the best of my ability, not to set the bar for the company, but so I can value the company. You might notice that my numbers always line up fairly closely with the analysts as we approach coming quarters. They differ materially, however, as you look farther out. But far out is where most of the value of the company is, so being "conservative" about including any of the drivers associated with an emerging new wave of computing is not useful. In particular, assuming that FY 1999 will grow EPS by 23% is not useful. Sensitivity analysis and careful thinking should be used to help control unwarranted exuberance, not conservative disregard of fundamental events molding the company.
WIND's run-time license stream is growing about 80% per year - without including I2O. With all the Tornado sales over the last 18 months, horizontally over many sectors, this stream should continue growing rapidly for years to come. Meanwhile, product license sales continue to grow nicely, and I expect services to experience very serious growth as WIND formally establishes an application consulting business. With all this broad-based growth, how can EPS only grow 23%?
Allen |
