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Technology Stocks : Lucent Technologies (LU) -- Ignore unavailable to you. Want to Upgrade?

To: Chuzzlewit who wrote (7744)	5/5/1999 4:51:00 PM
From: Chuzzlewit	Respond to of 21876

A comment: if the CNPEG2 valuation has any validity it suggests that LU is grossly overvalued relative to the market as a whole. Don't bash me: I own both LU and ASND. TTFN, CTC

To: Chuzzlewit who wrote (7744)	5/5/1999 5:54:00 PM
From: Mr.Fun	Read Replies (2) \| Respond to of 21876

Nice thought, but a couple things I'd quibble with: 1) The variable: I'm not certain, based on our quantitative work and the work of some sell siders, that the concept of YPEG really is a good predictor of performance. CNPEG2 needs some statistical work to assess whether it's a good predictive variable or not. Hard to tell on anecdotal analysis. 2) The formula: The interplay between YPEG and BETA is likely much more complicated than a strict multiplication can express. At the very least, the relative weighting is highly unlikely to be one for one. It could easily be an exponential relationship. 3) The data: Using consensus data limits you to the insight of a group think. Decisions to invest in stocks like these should be based on what you think the earnings will be not consensus. Also, where did you get the 5yr growth rates? Most sell siders don't publish 5 year models. I assume this is an earnings growth rate. If so,I think the LU EPS growth rate is grotesquely wrong. Given significant expected operating leverage, I'd use something north of 25%. 4) The calculations: Just checking the math on LU, using your data (with which I quibble), $56.5 price/$1.42 forward EPS equals 39.8 P/E divided by 21.5 growth rate equals 1.85 YPEG, CNPEG would equal about .60 and CNPEG2 would equal 1.04 - suggesting the stock is price about right if you accept this as a good indicator. 5) Using my numbers $56.5/$1.46 EPS = 38.7/26% EPS growth rate =1.49 YPEG, CNPEG would equal 0.48 and CNPEG2 would equal 0.83 suggesting LU is undervalued.