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

To: John Koligman who wrote (35302)	10/24/1998 3:14:00 AM
From: rupert1	Read Replies (1) \| Respond to of 97611

Has every one seen this CPQ "top pick"? I've seen bits and pieces of it before, but not in context. Don't really understand that if 1999 is to be $2 per share, they can't go the whole hog and move the target to $60 on the basis that CPQ will earn a p/e ration of 30 in 1999, in anticipation of 2000. Maybe they are leaving room for the inevitable upward surprises. Victor ------------------------------- COMPAQ COMPUTER CORP. (CPQ: $26)# 10/15/98 Recovery on Track Earnings Per Share Old New P/E Ratios (FY:Dec.) 1999E $2.00 $ 13.0 1998E .47 55.3 1997A 1.34 19.4 Rating: TOP PICK Change: None 12-Mo. Target: $50 CPQ reported in line Q3 EPS $.07 versus $.35. Compaq's PC business posted strong (38%) unit sell through and sequentially higher ASPs. We have left unchanged our Q4 estimate of $.37 and our 1999 estimate of $2.00. We continue to rate CPQ our Top Pick and believe the stock could approach $40/share over the next six months. Compaq needs to maintain 30% unit growth and experience single digit declines in ASP over the next five quarters to achieve our CPQ revenue growth forecast. We believe overall PC units will accelerate during the first half as corporations make a mad dash to upgrade remaining non Y2K compliant systems. Compaq's success and the performance of its stock over the next 4 quarters will be based on the company's ability to drive operating margins from the current 2.0% toward the company's goal of 15%. We believe CPQ will be successful in achieving 11% operating margins in 1999. CPQ stock is not only cheaper than DELL, GTW, AAPL and MUEI but its also cheaper than IBM, SUNW, HP, DGN and UIS. This, despite being the largest PC company in the world and on the brink of significant margin and earnings recovery. CPQ is the IBM of 1994. We reiterate our Buy rating

To: John Koligman who wrote (35302)	10/24/1998 12:42:00 PM
From: JRI	Read Replies (1) \| Respond to of 97611

John- Thanks for your comments....It's clear that the market now rewards some companies' (like IBM) share prices with what I'll call a "flight to safety and/or liquidity" premium...as a component of the stock price (in addition to the discounted-future-earnings-stream component) IBM's stock price has benefitted/benefits greatly from this premium...Will this stock price (and, accordingly premium) continue to expand at above 20% annually in the future...that given future growth will only accerlerate modestly, at best..Who knows? But an increase in this safety premium will probably be necessary for this to happen.. I am not comfortable owning IBM...Not enough upside (growth) potential, IMO (I am not comfortable investing with the hope that this safety premium will increase).......but it is clear that Gertsner has done a very good job on his watch...however, he has yet to prove he can grow IBM overall (not just the services component)at more than modest rates...I think only another company re-engineering could make it happen...Did you read Business Week's profile on IBM a couple weeks ago? Made some good points.... I agree with you that the services component of IBM business is very attractive...it's some of the other (mediocre) businesses that IBM seems unwilling/unable to change/diversify from that are a drag....