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Technology Stocks : All About Sun Microsystems -- Ignore unavailable to you. Want to Upgrade?

To: QwikSand who wrote (26443)	1/19/2000 9:20:00 PM
From: E_K_S	Read Replies (4) \| Respond to of 64865

Hey Quick - We are getting excellent After Hours activity for SUNW with the last trade at $84 1/2! I discovered this NASDQ site (http://www.nasdaq.com/asp/quotes_afterhours.asp?selected=sunw&symbol=SUNW). I just wonder how far this stock can go even with great earnings (estimate is $0.20 for this quarter) and excellent future compounded growth. To answer this question you simply have to guess how long can SUNW sustain it's current growth model. Assume a current price of $85/share and a 35% YTY growth profile maintained for the next 36 months, the future PE can be calculated as follows: Year 1: earn est: $1.34/share PE: 63 Year 2: earn est: $1.82/share PE: 47 Year 3: earn est: $2.47/share PE: 34 Therefore, at current prices, SUNW must grow earnings YTY at a 35% rate to yield a PE in Year 3 equal to the expected growth rate (ie. 34%). Summary: ============= The market has discounted future earnings growth as far out as 36 months to equal a YTY 35% growth rate. If SUNW can accelerate their earnings momentum during this period (ie. beat expectations), then it is quite possible that the market might price a much higher current PE. This is only true if the market believes that the company's annual growth rate (for the next 36 months) is higher than 35%. However, if the market determines any slow down in this expected future growth, a significant repricing of the stock will occur. (This could be what we are now seeing in the way MicroSoft stock is adjusting to their current posted earning.) It is my opinion that SUNW is fairly priced given the future growth expectations for their products and services. The key to higher current prices is if management can (1) show new current & future product revenue streams, (2) show continued demand side industry growth (at 35% or higher), (3) show a structured plan to provide new manufacturing supply to meet this sustained 35% growth model and (4) show the market that they are expanding market share at the expense of competitors (including IBM, HWP and CPQ). These are the things I will be focusing on in the conference call tomorrow. If our management paints an excellent 36 month picture, a $100/share price is quite achievable. EKS