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

To: rupert1 who wrote (50192)	2/26/1999 10:13:00 PM
From: hlpinout	Read Replies (2) \| Respond to of 97611

Hi victor, I kinda got nauseous when I read it.You would have thought that management would have done everything they could to keep away from even the thought of manipulating numbers even if it meant lowering the estimates in advance (or simply not overestimating). With these number shortages and the loss of sales online for ???? long, will next Q be overestimated too? Niles said CPQ expected the backend sales to bring the numbers in for 1Q. Does that mean CPQ anticipated the loss in Jan. or are they now overestimating for 2Q? BTW, I think we will hear something about AV in late June or July. It was July when CPQ/DEC consummated, yes? I am just guessing but it fits it the time frame EP stated and he seems to like to tie events to his announcements. Best, hio

To: rupert1 who wrote (50192)	2/27/1999 3:35:00 AM
From: Aitch	Read Replies (1) \| Respond to of 97611

More... CPQ: Q1 Starts Weak but Stock is Cheap 02:26pm EST 26-Feb-99 ING Baring Furman Selz LLC Earnings Per Share 1998 1999E 2000E PRIOR NEW PRIOR NEW Mar $0.01 $0.41 $0.35 $0.48 $0.48 Jun $0.02 $0.45 $0.40 $0.53 $0.53 Sep $0.07 $0.45 $0.45 $0.58 $0.58 Dec $0.38 $0.53 $0.53 $0.71 $0.70 B$0.49 $1.84 $1.73 $2.30 $2.29 73.5 x 19.6 x 20.8 x 15.7 x 15.7 x Summary * Compaq stock has weakened following indications that 1Q99 PC sales started off soft. We are lowering our estimates to take a more conservative stance, but believe a good buying opportunity is upon us. Compaq's fundamentals have improved significantly over the past 12 months, yet the stock is trading at similar levels. * Lowering 1Q99 revenue estimate to $9.9B from $10.1B following indications that January-February sales have been lighter than expected. * Lowering 1Q99 EPS estimate to $0.35 from an aggressive $0.41, with weakened sentiment enabling us to take a more conservative stance. Full year 1999 EPS estimate reduced to $1.73 from $1.84. * Believe weak start to Q1 was mainly a function of Intel's planned pricing actions in February, as some PC buyers waited to purchase latest-and-greatest Pentium III, while others held back in anticipation of price cuts on existing parts. Expect a rebound in March. * Reiterate Buy rating, with Compaq now trading at just 16x our year 2000 EPS estimate of $2.29. Weak Start to 1Q99 - Reducing Estimates to more Conservative Levels Indications from Compaq, as well as resellers, are that Q1 PC sales, particularly to small and medium-sized businesses, started off weaker than expected. As a result, we have taken a more conservative approach to our model, lowering 1Q99 and 2Q99 revenue and EPS estimates. For 1Q99, our revenue forecast goes to $9.9B from $10.1B and EPS declines to $0.35 from an aggressive $0.41. The decline in EPS is a function of both lower revenue targets as well as a more conservative estimate of gross margins, which we lowered to 27.4% from 27.8%. Our revenue estimate for 2Q99 has been reduced to $10.2B from $10.4B, with EPS lowered to $0.40 from $0.45. We have left our estimates for 3Q99 and 4Q99 relatively unchanged, since we had already modeled for a weaker 2H99 in anticipation of Y2K-related spending (and the need to exit 1999 fully-tested) crowding corporate IT budgets. January Slowdown is Typical in Front of Intel Pricing Actions Although we have seen indications from the reseller channel that January sales were weak, we believe that a January slowdown is typical of PC spending patterns, as buyers hold off in anticipation of Intel's February price cuts. This year has been exacerbated by those customers who preferred to wait for availability of PCs that were equipped with the new Intel Pentium III processor (released today). Following typical sales patterns, then, we do expect March PC shipments to rebound. Y2K Replacement Spending Still a Driver in 1H99 We continue to expect 1H99 PC sales to benefit from corporate remediation of distributed desktops, as IT departments swap out older systems in order to "buy their way out of the Y2K problem." We do see indications that this is taking place, although the upside in purchases is mainly offsetting weakness in more "typical" areas of PC spending (e.g., architecture and platform changes). Throughout the full year, then, we expect to see a tug-of-war between: 1) Positive impact of replacement spending, and 2) Negative impact on financial/human resources of Y2K-related remediation of legacy systems and the need to be tested and locked- down by the end of 1999. We continue to expect the positive impact to win out in 1H99 but weakness in corporate spending to show up in 2H99, particularly during 4Q99. Reiterate Buy Rating on Compaq Having sold off in response to news of a weak start to Q1, CPQ shares are currently trading at just 21x our $1.73 EPS estimate for 1999, and at less than 16x our $2.29 EPS estimate for 2000. It is infrequent that investors have a chance to buy dominant technology companies at a discount to their growth rate, yet we believe that such an opportunity exists now. As a result, we reiterate our Buy rating. Overall, Compaq has started 1999 in a much stronger fundamental position than it started 1998, with: -channel inventories at manageable (3-4 week levels), -dealer terms/conditions (and therefore contra revenue exposure) reduced, -a new multi-channel (indirect/direct) sales and distribution strategy progressing, and -integration of Digital on-track. As a result, we expect fundamentals to continue improving sequentially, along with Compaq's ability to capitalize on the power inherent to its dominant market position in the rapidly-consolidating PC industry. Our 12-month price target remains $60-65, or 26-28x expected 2000 EPS.