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

To: hlpinout who wrote (53224)	3/13/1999 12:16:00 PM
From: rupert1	Read Replies (1) \| Respond to of 97611

hio: The dynamics of real business does not fit neatly into quarterly reporting periods. It is the nature of CPQ's business that the first two months of every year are relatively slow and demand starts picking up in the third month: demand picks up again in the Fall. Management can make educated forecasts but they cannot announce sales until they happen. There are fiduciary and other legal issues involved. The debate about whether CPQ is laying its cards on the table or not is to a large extent a false debate created by analysts and journalists and protagonists on message boards who see it like a huge football game. In Britain, public companies are not expected to report to shareholders on a quarterly basis; it is six months or twelve months. This irons out the distortions associated with quarterly reporting. However, quarterly reporting does give greater transparency as the business progresses. In my view CPQ will beat the original forecasts by at least 1 cent and I am going for eps of 38 cents. Even if it only meets the new estimates of 33 cents (although Zacks is reporting it as 34 cents) I think that CPQ will make up any shortfall on the original estimates for the year as a whole and exceed them. I think the year will be at least $2.00 and believe it might be $2.50. By the end of the year, the p/e will be lookign forward to 2000. I would guess that in 2000 earnings could be $3.50. With a forward p/e of 25 that would bring the share price on 1/1/2000 to $87. If the 2000 earnings are only $2.50 (which is about current consensus estimates) the share price would be $72, assuming a p/e of 25. Why would the p/e expand from its current 17 to 25? The current p/e is an aberration which will not last long. Companies demonstrating consistent progress and growth in revenues, eps and dividends are awarded p/e at a premium to their growth rate. (DELL is currently beng granted a p/e premium of about 40 on top of its growth rate of 38%) CPQ's growth rate in 1999 will be in excess of 20%. By the end of the year, CPQ will have spun-off AV and the market will have inflated the value of CPQ's shareholding in AV and will be willing to award an additional premium based on future revenues from AV. Indeed, there may be a strong argument that CPQ's p/e by 2000 should be 30+.