Jimbo: Dan Niles IS the ax in this stock. He changed his rating to Buy from Attractive on 6/15/98 (article to follow) and he has absolutely the best record on this stock.
Oh, and another thing . . . for the record, I also abstained from your STAY/GO vote (which I'm beginning to regret) because I've been in one of those "judge not, lest thou be judged" moods and because I figured you'd stuff the ballot box anyway. Seems I was right on that count....
K
Compaq Ax Reckons Time is Right for a Rebound
By Eric Moskowitz
Staff Reporter
6/15/98 6:13 PM ET
Compaq's (CPQ:NYSE) inventories are down, and, according to Robbie Stephens analyst Dan Niles, the computer maker's fortunes might be about to change for the better.
While all eyes were on the Dow's 207-point plunge, Niles, the Compaq ax who was the subject of an April TSC profile, Monday morning raised his rating on Compaq to buy from long-term attractive. The move has yet to move Compaq's stock: Along with the rest of the ailing tech hardware sector, Compaq dropped 1 1/8, or 4%, to 27 1/16 Monday. Still, Niles is upbeat, anticipating that his forecast will look prescient once the third quarter gets underway.
"I'm trying to keep this upgrade under my hat so the stock stays down," says Niles, who expects Compaq to reach 40 in the next six to 12 months. "That way the rebound will be all the better in the second half of the year."
Niles, readers may recall, was the first analyst to see
Dan Niles
that the company was building up one heck of a channel inventory problem in the fourth quarter of 1997. "Back then, the company had built up a 10-week lag in its inventory channel," recalls Niles, who sees Compaq chopping that down to four weeks by month's end. "Now this channel problem seems to be finally behind us." Niles adds that he would like to see Compaq management knock that channel supply down to two or three weeks by the end of 1998.
Another indicator that things could soon turn around at Compaq is on the PC price front, where prices have plunged 25% from a year ago, according to tech research firm International Data Corp. Prices have been falling across the board thanks to Compaq, which started this last round of PC price wars to clear excessive inventory. An end to this war, then, isn't good just for Compaq, but for the entire PC space. Niles believes prices will begin stabilizing in the third quarter. "I predict they will fall another 6% from this point," says Niles.
One issue that could impact PC prices further is Asia, which has popped back onto the radar screen recently. Asian PC prices fell 4% in the first quarter, and according to IDC, the worst market conditions remain in Southeast Asia and Korea. But Dane Anderson, IDC's PC researcher, says he expects a pickup in the region in the second half. So does Niles, who believes PC shipments will increase 15% to 20% in the second half of the year, thanks in equal parts to Microsoft's (MSFT:Nasdaq) release of Windows98 later this month and the traditionally stronger second half.
Another plus going forward is that the Digital acquisition was closed last week without a hitch, says Niles. That is, if you don't talk about the 17,000 Digital workers being let go by Compaq. This layoff strategy, under which companies take a large one-time restructuring charge -- nearly $2 billion in this case -- is rather common. But Piper Jaffray analyst Ashok Kumar told clients on Friday that streamlining a workforce of 67,000 at the combined entity won't be a trivial task. (Kumar, who rates the stock a buy, has not participated in any of Compaq's public offerings.) Niles, however, believes the merger will give the company a ton of upside potential in terms of earnings in 1999. He sees the company earning $1.55 a share next fiscal year.
For 1998, Niles still can't seem to believe how far analysts' earnings estimates have fallen. Toward the end of 1997, earnings estimates were around $2. "Now they are down to reasonable levels for the stock," says Niles, who believes the company will earn 47 cents a share this fiscal year. "Estimates are achievable for a change." For the June quarter, Niles estimates the company will break even, which is a penny below First Call consensus numbers.
"People still hate the stock, and I want to get in while the psychology is really bad," he said. Where tech stocks are concerned, the psychology can't get much worse. |
