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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (70468)	10/28/1999 12:38:00 PM
From: rupert1	Respond to of 97611

Eric: In your original post you cited the earnings estimates currently published by analysts and assumed a modest forward p/e of no more than 25. I responded by suggesting forward p/e will fluctuate between 15 and 30. In return you have conceded that p/e can more than double once fundamentals change. Implicit in what you said is that the market awards very high forward p/e in transitional phases when it senses that future growth will accelerate. (Likewise it shrinks forward p/e in transitional phases when it senses growth is slowing). Let's now look at the earnings estimates for CPQ. Most analysts have said, in so many words, that they are being conservative (a) because the company is not providing quantified forward guidance (b) because the company is in turnaround mode, so let's wait and see. We don't need to be so cautious. If you take into consideration the massive costs savings, and a resumption of profitable growth, it is not too difficult to envisage earnings in FY 2000 in excess of $2. Even if it is only $2, and even if the p/e never exceeds 25, there will be a point in the not too distant future when the share price will be $50. If a $2 prediction is too rich for full year 2000 then project it to mid-2001. Assuming a forward p/e of 25 (or 30) during an upbeat summer of 2000, the share price would move to $50 (or $60). As for Niles. I know it is hard to keep up with his chamelon views, but having said we had not reached a bottom on Friday, last, he announced on Tuesday that COMPAQ had reached bottom. I think it is Kumar who is still searching for a bottom (which may be why he is so frustrated). But why listen to them? Niles was recommending COMPAQ a Strong Buy when it was $51 and a BUY when it dropped to $23. He still recommends it as a BUY - although it is hard to reconcile that with his "little upside" analysis. Poor old Kumar - groping for a bottom in the dark - or thrashing around for a bottom ( I could go on with double entendre all day) he had a BUY on it at $51, and then when his moles in COMPAQ tipped him off about the shortfall last year - he said that $35 would be a bottom: more recently he said $25. For him, CPQ is a bottomless pit.