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

To: PCSS who wrote (92315)	7/25/2001 3:59:09 PM
From: Elwood P. Dowd	Read Replies (1) \| Respond to of 97611

We need a little cushion in case this FAT PIG slides in AHT on earnings and cc.

To: PCSS who wrote (92315)	7/25/2001 5:26:40 PM
From: Elwood P. Dowd	Respond to of 97611

Michael: Did you listen to the cc??? El

To: PCSS who wrote (92315)	7/26/2001 10:05:22 AM
From: Elwood P. Dowd	Read Replies (2) \| Respond to of 97611

Merrill, ''Operational Excellence'' by: skeptically 07/26/01 10:01 am Msg: 246457 of 246458 26 July 2001 Steven M. Fortuna First Vice President Michael Hillmeyer Melanie Hollands Compaq Computer Corp Demonstrating Operational Excellence & Discipline ACCUMULATE Long Term ACCUMULATE Reason for Report: Analysis of Earnings Highlights: • Despite an exceptionally weak environment, we are very impressed with the operational excellence and discipline that Compaq is demonstrating. Last night Compaq reported 2Q01 revenue of $8.45 billion (down 8.1% sequentially and down 16.5% yr/yr) and EPS of $0.04, in line with the company’s recent preannouncement. • Compaq reduced its inventory levels by $700 million in the June quarter ($300 million company owned and $400 million in the channel) to bring the total reduction so far this year to $1 billion. The company plans to reduce inventory by a further $300 million in the September quarter ($100 million owned and the remainder in the channel). Compaq also exhibited impressive cost controls having cut 5100 jobs year-to-date of the planned 8500. • We believe Compaq is doing the correct thing by accelerating its efficiency improvements. The strategy is clear: With demand very weak, and revenue going to be weak, why not take the opportunity to reduce inventory at a time when the company will not be penalized for it while working very hard on the cost side to drive earnings. Then when the environment improves, Compaq would have a better operating cost structure and lower inventory levels, which should generate significant upside leverage. We reiterate our Accumulate rating on Compaq shares with a $17 price objective based on 26x our $0.65 EPS forecast for next year. Price: $14.12 12 Month Price Objective: $17 Estimates (Dec) 2000A 2001E 2002E EPS: $0.96 $0.32 $0.65 P/E: 14.7x 44.1x 21.7x EPS Change (YoY): -66.7% 103.1% Consensus EPS: $0.41 $0.72 (First Call: 18-Jul-2001) Q2 EPS (Sep): $0.30 $0.07 Cash Flow/Share: $1.11 $0.85 $1.25 Price/Cash Flow: 12.7x 16.6x 11.3x Dividend Rate: $0.08 $0.08 $0.08 Dividend Yield: 0.6% 0.6% 0.6% Opinion & Financial Data Investment Opinion: B-2-2-7 Mkt. Value / Shares Outstanding (mn): $23,834.6 / 1,688 Book Value/Share (Jun-2000): $6.94 Price/Book Ratio: 2.0x ROE 2001E Average: 10.0% LT Liability % of Capital: 0.0% Est. 5 Year EPS Growth: 15.0% Next 5 Year Dividend Growth: NA Stock Data 52-Week Range: $35.00-$13.20 Symbol / Exchange: CPQ / NYSE Options: Chicago Institutional Ownership-Vickers: 57.3% Brokers Covering (First Call): 21