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

To: Roads End who wrote (31019)	8/18/1998 9:00:00 AM
From: Elwood P. Dowd	Read Replies (2) \| Respond to of 97611

Good morning Steve and all! Can Lucy be far behind??? El

To: Roads End who wrote (31019)	8/18/1998 9:01:00 AM
From: PCSS	Read Replies (1) \| Respond to of 97611

It seems like life will be getting BETTER !! Back in NJ from Martha's Vineyard ... got out before Bill, etc. arrive today. Michael

To: Roads End who wrote (31019)	8/18/1998 10:08:00 AM
From: Aitch	Respond to of 97611

Morning all, Sorry if it has been posted already, but here is the full text of the upgrade: ------------------------------------------------------------------------------- COMPAQ COMPUTER CORP. (CPQ) "BUY" PC Market Continues To Strengthen Near Term--Company's Outlook Improved As ASPs Stabilize And New Products Are Introduced--Raising Estimates And Upgrading Rating To "Buy" ------------------------------------------------------------------------------- Date: 08/17/1998 EPS: 1997A 1998E 1999E Price: 35.0 1Q 0.27 R 0.01 0.29 P 52-Wk Range: 40 - 23 2Q 0.30 RP 0.02 AP 0.43 Ann Dividend:0.06 3Q 0.35 RP 0.05 P 0.47 P Ann Div Yld: 0.17% 4Q 0.42 P 0.40 P 0.66 P Mkt Cap (mm):56,140 FY(Dec.) 1.34 P 0.48 P 1.85 P 3-Yr Growth: 20% FY P/EPS 26.1X 72.9X 18.9X CY EPS 1.34 P 0.48 P 1.85 P Est. Changed Yes CY P/EPS 26.1X 72.9X 18.9X ------------------------------------------------------------------------------- HIGHLIGHTS: -- PC Desktop ASPs stabilize driving resumed market revenue growth -- Notebook pricing likely to also moderate while server business strong -- Compaq's July robust and early indication suggests August on track -- DEC acquisition creates low near-term expectations and DEC business solid -- Combined company now dominated by higher-growth servers and service (50%+) -- Raising FY99 estimate to $1.85 from $1.70 on better margin assumptions -- Target price of $46, based on 20x multiple of preliminary FY2000 estimate. -- Upgrading rating from "market perform" to "buy" DETAILS: PC MARKET -- NOT ROBUST, BUT STABLE AND RIPE FOR SHARE GAINS Recently our channel checks, information from Compaq management, its competitors, and suppliers indicate that many of the issues that plagued the PC market in the first half of the year have improved, and notable to us, that ASP trends for machines have stabilized near-term. We continue to expect modest further erosion, but believe today that the period of precipitous drops has neared an end. Sporadic shortages of key parts and stock-outs of certain models have contributed to this new environment, which we believe will firm through the seasonally strong 2H. We have not forecast a rebound in unit growth, but see that continued Y/Y demand growing in the 10-15% range will once again prove sufficient to allow well-positioned players to gain share. COMPAQ'S POSITION -- NOW MORE COMPETITIVE THAN EVER With a refreshed product line, low levels of channel inventory, and the build-to-order model improving supply chain management Compaq appears in solid position to grow both its desktop and portable market share. Given the sharp fall-off of prices, the company is also significantly more competitive with "white-box" alternatives and the direct model. However, we also see that the new Compaq is more of a server and service company, with those segments making up over 50% of revenues today, and increasing as a percentage going forward. DEC INTEGRATION - STEADY AS SHE GOES Outside of falling ASPs, our other key fundamental concern revolved around the Digital Equipment merger. Integration progress has been relatively smooth to-date, and we would note that it appears as if the DEC business has remained strong throughout the transition -- ahead of expectations. We would also note that we have heard little about the usual missteps that occur in mergers of this magnitude, which does bode well for near-term results - even though our expectations have been dampened because of the severity of business in the Asian region, and DEC's normal seasonal softness. We continue to be reserved over the next 12-18 months when many tough decisions need to be made regarding product line convergence, personnel deployment and expense efficiencies and many mergers fail to meet expectations. THE FUTURE -- ALL THE "NT" BEHIND ONE ARROW Longer term, we are bullish regarding the strategic sense behind the merger, and the companies' ability to drive continued 20%+ earnings growth. Over time, we see Compaq as the leading supplier of NT solutions, hosted on multiple platforms (AMD/Cyrix at the low-end, Intel at the mid-range and high-end, and Alpha at the very high-end). Coupled with the direct sales and service capacity from both the original Compaq and DEC, we believe this product offering will be the fastest growing segment in the enterprise computing environment -- and Compaq is uniquely positioned. NEAR-TERM OUTLOOK AND VALUATION Given our increased comfort level with both of Compaq's major product areas and the near-term stability of the PC market we are more confident in our estimates for the 2H, which remain roughly in-line with consensus. However, we are raising our expectations for FY99 to $1.85 from $1.70 on the basis of the expected margin contribution of a healthy DEC business and a stable PC business. Given this improved outlook, we are also more comfortable with a preliminary FY2000 estimate of $2.30, driving a 6-12 month price target of $46 (based on a 20x multiple). Accordingly we are upgrading our investment rating on the shares to "buy" from "market perform." Great move! Now just let me look into the crystal ball and see what will happen to the stock in the next day or so... <g> Regards, H