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

To: Windseye who wrote (37794)	11/29/1998 3:28:00 PM
From: rudedog	Read Replies (3) \| Respond to of 97611

Doug - The estimates I made were a swag at current revenue numbers. Because of the merger activity it's kind of hard to either do a historical or forward-looking projection, and I think that's one of the reasons the street has been so touchy on this topic. So here's the optimistic WAG. 4Q is typically CPQ's best quarter, but of course in every previous year this included a bunch of product loaded into the channel, which won't happen this year. Even so, I would expect revenue around $10B, maybe over that number, but probably not $11B. Given the shift in product mix to the high end, where many of the products have better than 40% GM, I expect the overall GM to remain high, maybe 28%. I don't have a good feel for cost of goods sold or SG&A in general, but net profit of 9% or better is not unreasonable. That would put Net Income around $1B, plus or minus $50M. With 1737 million shares outstanding, that would generate EPS of something like .57 and we would all be happy campers. But there are a number of issues which could temper this projection. The integration of the three field organizations into one could create problems in getting closure on those high margin sales. The service business lost some accounts (like Dell) who did not want their customers serviced by CPQ. The Desktop business may have eroded faster than I assumed. There may be additional charges which do not fall into the 'merger related costs' bucket. So I discount my estimate by maybe 20% to account for all of the things I didn't think of, and still come up with .46 If I was in an optimistic mood, I would go with that number. But I would think that if things were that rosy, the CPQ management team would be providing upward guidance to the street, and they have not been doing that. So for my 'real' estimate, I take the current wisdom of .36, and my estimate of .46, and average them to get to .40 or .41 for EPS. This is my usual loose and minimally researched guesstimate, so take it FWIW.