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

To: Satish C. Shah who wrote (84605)	9/3/2000 5:45:21 PM
From: Elwood P. Dowd	Read Replies (1) \| Respond to of 97611

Satish... lifted the following at The Zoo. El CPQ areas for improvement by: jcdiedforme 9/3/00 5:16 pm Msg: 180934 of 180934 While CPQ has made considerable improvement in key areas there is still plenty of work to do. Gross margins are 23% vs the industry avg of 35.5%. Operating margins are 4.7% vs the industry avg of 9.8%. Net margins are 3% vs IBM at 8.5%, Sun at 11.8%, HP at 7.3%, Dell at 6.5%, GTW at 5.5% and Apple at 9.8%. One area that should be easy to fix is the effective tax rate. CPQ is currently running 35.6% vs an industry avg of 31.1%. This one comes straight off the bottom line. Getting down the effective tax rate was the key to Gerstner's success at IBM. Hopefully with the new CFO on board they can work to correct the tax rate down. Dell is at 32%. Revenues per employee are well above the industry avg at $586m/employee. However, net income is a pathetic $17m/employee vs an industry avg of $42m. In an 8/26/2000 S&P report on CPQ they mentioned that the reason that CPQ stock is trading below the industry p/e multiple reflects the fact that few believe that Capella can execute a lasting turnaround strategy. I wonder where these same people were regarding Chainsaw 'Al'. Furthermore, while it is true that Capellas doesn't have a track record of turning companies around, the fact is that all successful turnaround architects had to start somewhere. This merely suggests that CPQ stock price appreciation will come the old fashion way. ie. 'They earn it' High flying CEO's are always given the benefit of the doubt. Of particular note was the way that HP jacked their numbers around to make it appear they blew through last quarters earning estimates. If CPQ had done the same thing they would have been killed. ( I tend to belive that Fiorina is overated and will likely washout within 2 years) While the overall performance and outlook for CPQ looks healthy for at least the next 8 quarters, I am continually troubled by the lack of insider buying in this stock. Over the past 3 years the board has demonstrated their ability to buy lows and sell highs. Nevertheless, this year we see virtually no activity in the stock in spite of what appears to be clear sailing on their product line. Overall this remains a stock that should continue to outperform the S&P in the months ahead. The one thing Capellas has done very well is overcommunicating with Wall Street. WS analysts are risk averse and will not get behind a stock if there is any personal risk. They have clearly gotten an advantaged look at the company and they like what they see. Money flow remains extremely supportive for the past 5 months. $33-35 is a congested area that may take 30 days or so to get through. Based on P/E's, Price to book or price to sales ratios CPQ stock is worth between $60-120/share. At some point in the next 6 months hot money will find its way to CPQ's doorsteps and the appreciation should be significant.