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Technology Stocks : HWP -- Hewlett Packard -- Ignore unavailable to you. Want to Upgrade?

To: Fred Levine who wrote (3045)	5/14/1999 7:45:00 PM
From: William Partmann	Read Replies (1) \| Respond to of 4722

HWP: Expect Good F2Q on Monday, May 17; EPS Raised Slightly; Buy Salomon Smith Barney Wednesday, May 12, 1999 -------------------------------------------------------------------------------- --SUMMARY:--Hewlett-Packard Co.--Server & Enterprise Hardware * HP will announce F2Q99 results on Monday, May 17 after market closes. A conference call is scheduled at 5:00 p.m. EDT. * We have raised our EPS estimate from $0.80 to $0.83 for the quarter. The consensus estimate is $0.79. * The company is feeling rather bullish about its overall prospects which is partly being supported by its 4/13 midrange UNIX server announcement. * We also note that HP has turned its usual analyst meeting at The Pierre Hotel in NYC on 6/2 to an all-day event with break-out sessions after the formal presentation. This is a clear demonstration of HP's willingness to disseminate more information and detail than it has historically provided. --EARNINGS:----------------------------------------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year Actual 10/98 EPS $0.86A $0.70A $0.59A $0.79A $2.94A Previous 10/99 EPS $0.92A $0.80E $0.83E $0.96E $3.50E Current 10/99 EPS $0.92A $0.83E $0.83E $0.96E $3.53E Previous 10/00 EPS $1.07E $0.98E $0.94E $1.11E $4.10E Current 10/00 EPS $1.07E $0.98E $0.94E $1.11E $4.10E Previous 10/01 EPS $N/A $N/A $N/A $N/A $N/A Current 10/01 EPS $N/A $N/A $N/A $N/A $N/A Footnotes: EPS are fully diluted. --FUNDAMENTALS:------------------------------------------------------------- Current Rank........:1-M Price 05/10/99......:$80.37 Prior Rank..........: Target Price........:$90.00 P/E 10/99...........:22.8X 52 Wk Price Range...:81.93 - 48.56 P/E 10/00...........:19.6X Proj. 5yr EPS Grth..:15.0% Return on Equity 98.:17.60% BookValue...........:$20.13 LT Debt-to-Capital..:11.22% Dividend............:$.64 Revenue 1999........:$53620.00 mil Yield...............:.8% Shares Outstanding..:1076.00 mil Convertible.........:Yes Mkt. Capitalization.:$86478.12 mil Hedge Clause(s).....: Comments............: --OPINION:------------------------------------------------------------------ For F2Q99, we expect revenue to grow 3.5% year over year. Gross margins should be up by 110 basis points to 32.8% from 31.7% a year ago. Operating margin is forecast to be 9.0%, up from 7.2% a year ago. Printers: We expect HP to maintain or perhaps gain market share in both the laser and inkjet space. Both competitors, Canon and Epson (despite aggressive marketing) are feeling pressure from HP's new product lines. Measurement: This business should benefit from the positive economic and business trends that are beginning to unfold in Asia. The closing of HP's semiconductor fab in Colorado a quarter ago, and the reduction of 1,800 employees from this business should also help. PCs: HP continues to make gains in consumer PCs which is 20-25% of the company's PC business. The commercial side is expected to produce growth rates in the teens this quarter. Servers: We expect revenue to be down 12-15% on a dollar basis year-over-year. This is a slight improvement from last quarter's 18% year-over-year decline. However, with recent shipments of the midrange N-Series, coupled with shipments of the high-end V-Series that began in February, we expect at least a 30-point sequential uptick in the next two quarters which should be followed by two more quarters of easy year-over-year comparisons. We expect the next few quarters to showcase strong demand for HP's servers from the company's customer base. Customer endorsements of the N-Series were impressive. SIAC plans to upgrade its fleet of 850 K-class servers to the N-Series. -------------------------------------------------------------------------- Salomon Smith Barney is a U.S. registered broker-dealer. It is a member of Citigroup Inc. and is affiliated with Citibank, N.A. and its subsidiaries and branches worldwide (collectively "Citibank"). Despite those affiliations, securities recommended, offered, sold by, or held at, Salomon Smith Barney: (i) are not insured by the Federal Deposit Insurance Corporation; (ii) are not deposits or other obligations of any insured depository institution (including Citibank); and (iii) are subject to investment risks, including the possible loss of the principal amount invested. Salomon Smith Barney including its parent, subsidiaries and/or affiliates ("the Firm"), may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any company mentioned in this report. For the securities discussed in this report, the Firm may make a market and may sell to or buy from customers on a principal basis. The Firm, or any individuals preparing this report, may at any time have a position in any securities or options of any of the issuers in this report. An employee of the Firm may be a director of a company mentioned in this report.