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

To: Night Writer who wrote (81803)	4/28/2000 4:58:00 AM
From: beachbum	Respond to of 97611

Why Compaq is Coming Back Tell us what you think in CPQ's Board individualinvestor.com Senior Analyst: Eric Singer (4/26/00) Compaq Computer (NYSE: CPQ - Quotes, News, Boards) announced first quarter results on Tuesday afternoon, shortly before the market closed, that met Wall Street consensus earnings estimate of $0.16 per share. Shares traded up sharply following the release as investors and analysts warmed to the turnaround being orchestrated by CEO Michael Capellas, who was named to the post last July. Compaq is at a key inflection point. Capellas has stabilized its business and operating expenses have been reduced for three straight quarters. Momentum is starting to build and expectations for the Houston-based personal computer company are still low. While challenges remain, shares of Compaq are poised to trade higher as investors begin to discount the potential for Compaq showing meaningful earnings gains in the second half of this year. Compaq reported revenue of $9.52 billion, and while this number was at the low range of consensus forecasts, management indicated that March was a strong month with accelerating momentum. An improved cost structure coupled with better margins led to Compaq hitting consensus earnings estimates. Gross margins increased to 23%, up by 80 basis points sequentially while operating expenses were reduced by almost $150 million when compared to operating expenses in the fourth quarter. Enterprise sales, or, more simply, sales of machines to large corporate accounts, totaled $4.3 billion. This segment of Compaq's business is poised to show improvement on a sequential basis with the upcoming introduction of a product, Wildfire, a high-end Alpha chip server. Compaq has orders for 120 Wildfire units and is expected to ship 200 units in total in the second quarter. This product will not only strengthen Compaq's presence in the high-end server market, but is expected to contribute $1 billion in revenue this fiscal year. Compaq made considerable progress in stemming loses in its commercial PC operations; operations that should be back in the black by the third quarter, if not sooner. Compaq has reworked its distribution, making a push in to the direct market, and reduced inventory while focusing on higher margin business. Compaq's consumer group posted sales of $1.8 billion, a 35% increase when compared to the same period last year. Compaq has made generating so called beyond-the-box revenue a key focus, and sales of printers as well as Internet access are contributing meaningfully to operating income. Compaq management has endorsed consensus estimates, providing investors with further comfort. Additionally, Compaq CFO Jesse Green will be meeting with investors in May. With much of the restructuring behind it, and as Compaq begins to articulate its strategy for growing its business, investors are likely to be drawn toward the shares. Today, Merrill Lynch analyst Steven Fortuna increased his investment rating on Compaq to 羨ccumulateúfrom 鮮eutralúbased on the prospects for a strong second half of the year. Salomon Smith Barney and ING Barings also upped its ratings on Compaq. While Compaq is not yet out of the woods, it is in far better shape today than it has been in some time. Shares are not expensive with estimates for fiscal 2000 and 2001 in the $1.10 and $1.40 range, respectively. Bottom Line: With the prospects of strength in PC unit growth in the second half of this year coupled with new product launches in the key server market, Compaq shares should break out above a recent $30 for a sustainable rally.