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Compaq bulls ahead

Compaq trades as high as 84-3/4 a share, up nearly 8 percent from yesterday, based on a strong earnings report.

    Compaq Computer (CPQ), which holds top market share among personal PC vendors, saw its stock rise today after exceeding expectations in its quarterly earnings report.

    The stock traded as high as 84-3/4 a share before closing at 83-3/8, up 4-7/8 points from yesterday.

    An analyst with Josephthal, Lyon & Ross upgraded his recommendation to "buy" from "hold" and said his 1997 and 1998 earnings estimate would likely increase.

    Meanwhile, analyst Richard Chu with Cowen & Company said he expected to raise his 1997 earnings estimate to between $5.90 to $6 a share, up from his current estimate of $5.60. Chu said he will make a final call later today.

    Compaq surpassed analysts' estimates when it announced net profits of $462 million, or $1.64 a share, for the quarter, compared with $82 million, or 30 cents a share, a year earlier. Excluding a one-time $241 million acquisition-related charge, it would have posted 1995 fourth-quarter earnings of $1.17 a share.

    Earnings for the quarter were well above analysts' estimates of $1.53 a share, according to First Call.

    Revenues for the quarter reached $5.4 billion, a 15 percent increase over the previous year.

    Compaq sales also grew 23 percent to $18.1 billion in 1996, compared to 1995. And earnings totaled $1.3 billion, a 28 percent increase over 1995, excluding the one-time charge.

    The company reported it was flush with cash due to a greater emphasis on internal asset management and improvements in operations. Compaq has $4 billion in cash, compared with $745 million for the 1995 fiscal year.

    Compaq, which is the most successful proponent of the Intel system architecture, and manufactures PCs, servers, and networking equipment, strengthened its number-one position in the consumer market in the fourth quarter of calendar-year 1996. According to a recent report from market research firm Computer Intelligence, Compaq posted a 21 percent gain in marketshare over the same period a year ago. Those results were quite strong considering overall retail sales this Christmas season were weaker than expected.

    But it's the commercial sector that serves as the main fuel for Compaq's growth engine. Spurred by firms that are moving to Windows NT, the company posted 63 percent growth in the dealer channel that serves the commercial market compared to last year, according to the Computer Intelligence survey.

    Compaq's position in the commercial market will likely continue to improve next year. It has a new line of workstation products that are positioned to piggyback on the growth of the Windows NT workstation market, which IDC says will grow at 44 percent a year through the year 2000.