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

To: James Cotton who wrote (24502)	4/16/1998 4:31:00 PM
From: ALTERN8	Read Replies (1) \| Respond to of 97611

CEO Is Committed To Get To Model Channel Inventories By 6/98 Research Notes Subject: Compaq Computer Corp. (CPQ--$26.75)--NYSE Opinion: BUY ============= =============================================================================== Date: April 16, 1998 ------------------------------------------------------------------------------- Market Profile 52-Week Range $40-$14 \| EPS Growth Rate (3-5 Yrs.) 20% Avg. Daily Volume 23,550 M \| ROAE (LTM) 21% Shares Outstanding 1584.0 MM \| Debt to Total Capital 0% Market Capitalization $41,284 MM \| Book Value Per Share $5.98 Floating Market Cap. $40,045 MM \| Indicated Dividend/Yield $0.06/0.23% Institutional Owner. 64% \| Revenue (LTM) $24,998 MM Insider Holdings 3% \| _______________________________________________________________________________ Earnings/Share Fiscal Calendar Calendar 1Q/Mar 2Q/Jun 3Q/Sep 4Q/Dec Year Year P/E Ratio ------ ------ ------ ------ ------ --------- --------- 1997 $0.27 $0.30 $0.36 $0.42 $1.35 $1.35 19.8x 1998E 0.01 0.00 0.39 0.50 0.90 0.90 29.7 1999E - - - - 1.80 1.80 14.9 ------------------------------------------------------------------------------- Highlights: - We are maintaining our Buy recommendation and our 12-month price target of $35. ------------------------------------------------------------------------------- 1Q98 results were basically in line with earnings warning on 3/9/98. Revenues were slightly higher at $5.7 billion and gross margins were slightly lower at 18%. The only new news that was positive was that the actions taken in 3/98 yielding results in accelerating channel sell through. Units out of the channel grew 53% y-t-y while CPQ sales into the channel grew 40% y-t-y. While there is clearly a lot of work to be done, we were encouraged by the commitment of the CEO to achieve optimal channel inventory levels no matter what the short term pain by 6/98. We know he is very determined and does not give public commitment lightly. There may be challenges but it will be done on time. So we are confident that the core PC business at CPQ will be sound by 2H98, even though PC servers may no longer enjoy overall gross margin of better than 30%. Over the next 6 months, we expect the stock to perform well against a background of heavy investors skepticism, and our confidence that CPQ can at least execute its PC business well. We also see a strong PC environment in the U.S. and Europe in 2H98. The biggest challenge is for management to prove that it can handle the acquisition of Digital Equipment (DEC - 54) successfully, in the face of a history of unsuccessful ones in the computer industry. Unfortunately we will not know that outcome until 1999 and based on current information we cannot automatically assume success even given our high regards for CPQ's management. ======================================================================