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STOCKREPORTS Compaq Computer Corporation NYSE Symbol CPQ
In S&P 500
21-FEB-98 Industry:
Computers (Hardware) Summary: Compaq is the leading worldwide manufacturer of desktop and portable computers and PC servers. Products are sold in more than 100 countries through some 38,000 marketing locations.
Recent Price 34.06
52 Wk Range 39.78 - 14.20 Yield 0.2%
12-Mo. P/E 28.6
Quantitative Evaluation:
Outlook (1 Lowest - 5 Highest)
4-
Fair Value
41.60
Risk
MEDIUM
Earn/Div Rank
B
Technical Evaluation:
BEARISH since 08/97
Rel. Strength Rank (1 Lowest - 99 Highest)
73
Insider Activity
Neutral
Overview 28-JAN-98
We project revenue growth of nearly 25% in 1998 for CPQ on a standalone basis as it successfully executes on a build-to-order model and benefits from its leadership position in personal computers (PCs) and PC Servers. In addition, CPQ recently agreed to acquire Digital Equipment (DEC). The deal, which comprises cash and stock valuing DEC at some $9.6 billion, promises to grow CPQ from a roughly $30 billion company to a more than $40 billion company following the projected second quarter closing of the merger, which is subject to shareholder and regulatory approval. While CPQ's gross margin would improve under the combination, its operating margin could be slightly diluted by DEC's higher cost structure, including heavier R&D spending. However, details of the planned synergies, cost savings and consolidation plans have yet to be outlined. Until these details are known, we are remaining with our 1998 estimate of $1.67.
Valuation 28-JAN-98
We continue to recommend accumulating the shares. CPQ's positive revenue growth and asset management were impressive in 1997. CPQ is one of the best positioned companies to capitalize on the PC industry's 15%-20% projected growth, and through the proposed acquisition of Digital Equipment (DEC), CPQ can now compete for the largest computing customers, enabled by DEC's global sales and service capabilities and high end UNIX operating system. While the benefits of the largest merger in the computer industry's history may take some time to be fully realized, CPQ's strong track record of streamlining operations and effective execution should help CPQ shares outperform the market.
Key Stock Statistics
S&P EPS Est. 1998 1.67
P/E on S&P Est. 1998 20.3
S&P EPS Est. 1999 2.09
Dividend Rate/Share 0.06
Shs. outstg. (M) 1514.0
Avg. daily vol. (M) 21.344
Tang. Bk. Value/Share 5.66
Beta 1.55
Shareholders 8,700
Market cap. (B) $ 51.6
Inst. holdings 66%
Value of $10,000 invested 5 years ago:$ 107,929
Fiscal Year Ending Dec. 31
Revenue (Million $)
1997 1996 1995 1994 1993 1992
Q1 4,805 4,205 2,959 2,278 1,611 783.0
Q2 5,012 4,001 3,501 2,499 1,632 827.0
Q3 6,474 4,481 3,594 2,838 1,746 1,067
Q4 7,323 5,422 4,701 3,251 2,202 1,423
Year 24,584 18,109 14,755 10,866 7,191 4,100
Earnings Per Share ($)
1997 1996 1995 1994 1993 1992
Q1 0.27 0.17 0.16 0.16 0.08 0.04
Q2 0.30 0.19 0.18 0.16 0.08 0.02
Q3 0.33 0.25 0.18 0.15 0.08 0.04
Q4 NA 0.33 0.06 0.18 0.12 0.07
Year NA NA 0.58 0.65 0.36 0.17
Dividend Data (Dividends have been paid since 1998)
Amount ($) Date Decl. Ex-Div. Date Stock of Record Payment Date
5-for-2 Jul. 01 Jul. 29 Jul. 14 Jul. 28 '97
0.015 Oct. 16 Dec. 29 Dec. 31 Jan. 20 '98
2-for-1 Oct. 16 Jan. 21 Dec. 31 Jan. 20 '98
Business Summary 28-JAN-98
On January 26, 1998, in a move to gain the No. 2 position in the computing industry, Compaq agreed to acquire Digital Equipment (DEC) in a cash and stock deal valued at $9.6 billion at the time of the announcement, making it the largest acquisition in the computer industry's history. DEC, with revenues of $13 billion for its FY 97 (ended June), provides CPQ with a global service organization and a high-end 64-bit UNIX offering. The deal, expected to close during 1998's second quarter, following shareholder and regulatory approval, gives DEC shareholders $30 in cash and 0.945 shares of CPQ stock for each DEC share. CPQ plans to issue 150 million shares and $4.8 billion of cash.
Compaq already holds the No. 1 share in the worldwide market for personal computers and servers. CPQ products are sold and supported in more than 100 countries through a broad network of CPQ authorized partners, with half of its sales from outside the U.S. and Canada .
CPQ has revolutionized the PC industry as it offers PCs with attractive features at competitive prices (i.e., less than $1,000), as a result of new manufacturing efficiencies yielded through its new manufacturing strategy, BTO (Build To Order). This strategy is part of a larger, new business model CPQ launched, called ODM (Optimized Distribution Model), to offer customers better support and services at better prices, to compete head-to-head with direct-seller Dell Computer.
The DEC acquisition furthers CPQ's goal to increase its presence in the enterprise market for computers, and complements its 1997 acquisition of Tandem Computer, a leader in complex enterprise-class networks. Prior to these acquisitions, CPQ had broadened its product offering to this market, and introduced new clustering and internetworking solutions. In 1996, CPQ entered the workstation market with its Professional Workstation line, featuring Intel's Pentium Pro and now Pentium II processors and Windows NT operating system.
Under its Presario line, CPQ offers consumers and home office users PCs rich with multimedia capabilities.
CPQ also has offerings in the fast-growing networking products arena. CPQ's Internetworking Products Group includes NetWorth Inc. (acquired in 1995), a provider of Fast Ethernet networking products, and Thomas-Conrad Corp., a maker of network interface cards and hubs. In 1997, Compaq centered its efforts in its Netelligent product line in developing switches, repeaters and options that lower the cost and complexity of migrating from Ethernet to Fast Ethernet. CPQ has in the past targeted its networking products at smaller businesses and work groups in larger corporations, but the addition of Microcom (acquired in 1997) also added WAN (wide area network) products through Microcom's modem and remote access technology.
Capitalization
Long Term Debt: None (12/97).
Per Share Data ($)
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Tangible Bk. Val. NA 4.49 3.46 2.81 2.10 1.68 1.53 1.44 0.99 0.70
Cash Flow NA 1.15 0.73 0.77 0.49 0.30 0.22 0.44 0.32 0.24
Earnings 1.18 0.94 0.58 0.65 0.36 0.17 0.10 0.34 0.26 0.21
Dividends 0.02 Nil Nil Nil Nil Nil Nil Nil Nil Nil
Payout Ratio 1% Nil Nil Nil Nil Nil Nil Nil Nil Nil
Prices - High 39 3/4 17 3/8 11 3/8 8 3/8 5 3 3/8 5 4 1/2 3 3/4 2 3/16
- Low 14 1/4 7 1/8 6 1/4 4 7/8 2 3/4 1 1/2 1 1/2 2 3/8 2 1 3/8
P/E Ratio - High 34 18 20 13 14 19 50 13 14 12
- Low 12 8 11 7 8 9 15 7 8 7
Income Statement Analysis (Million $)
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Revs. NA 18,109 14,755 10,866 7,191 4,100 3,271 3,599 2,876 2,066
Oper. Inc. NA 2,162 1,738 1,434 847 482 469 784 573 408
Depr. NA 285 214 168 155 159 164 135 84.0 48.0
Int. Exp. NA 91.0 106 74.0 63.0 47.5 43.9 54.9 46.8 27.7
Pretax Inc. NA 1,876 1,188 1,172 616 311 174 671 498 375
Eff. Tax Rate NA 30% 34% 26% 25% 31% 25% 32% 33% 32%
Net Inc. NA 1,313 789 867 462 213 131 455 333 255
Balance Sheet & Other Fin. Data (Million $)
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Cash NA 3,993 745 471 627 357 452 435 161 281
Curr. Assets NA 9,169 6,527 5,158 3,291 2,319 1,783 1,688 1,312 1,115
Total Assets NA 10,526 7,818 6,166 4,084 3,142 2,826 2,718 2,090 1,590
Curr. Liab. NA 3,852 2,680 2,013 1,244 960 639 644 564 480
LT Debt NA 300 300 300 Nil Nil 73.0 73.0 274 275
Common Eqty. NA 6,144 4,614 3,674 2,654 2,007 1,931 1,859 1,172 815
Total Cap. NA 6,674 5,138 4,153 2,840 2,183 2,188 2,074 1,526 1,110
Cap. Exp. NA 342 391 357 145 159 160 325 362 286
Cash Flow NA 1,598 1,003 1,035 617 372 295 590 417 304
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Curr. Ratio NA 2.4 2.4 2.6 2.6 2.4 2.8 2.6 2.3 2.3
% LT Debt of Cap. NA 4.5 5.8 7.2 Nil Nil 3.3 3.5 17.9 24.8
% Net Inc.of Revs. NA 7.3 5.3 8.0 6.4 5.2 4.0 12.6 11.6 12.4
% Ret. on Assets NA 14.5 11.3 16.7 12.5 7.3 4.8 18.2 18.0 19.6
% Ret. on Equity NA 24.4 19.0 27.0 19.4 11.1 7.0 28.9 33.3 40.3
Data as orig. reptd.; bef. results of disc. opers. and/or spec. items. Per share data adj. for stk. divs. as of ex-div. date. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. Diluted EPS from Dec. 1997.
Office--20555 SH 249, Houston, TX 77070. Tel--(713) 370-0670. Website-- compaq.com Pres & CEO--E. Pfeiffer. SVP-Fin & CFO--E. Mason. SVP & Secy--W. D. Fargo. Dirs-- B. M. Rosen (Chrmn), R. T. Enloe III, G. H. Heilmeier, G. E. R. Kinnear II, P. N. Larson, K. L. Lay, E. Pfeiffer, K. Roman, L. Salhany. Co-Transfer Agents & Registrars--Co. itself; BancBoston Trust Co. of New York. Incorporated--in Delaware in 1982. Empl-- 18,863. S&P Analyst: Megan Graham Hackett
This report is for information purposes and should not be considered a solicitation to buy or sell any security. Neither S&P nor any other party guarantee its accuracy or make warranties regarding results from its usage. Redistribution is prohibited without written permission. Copyright c 1998 |
