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Personal Finance > Investing
Compaq report a 'disaster'
April 11, 1999: 8:45 p.m. ET

PC maker's earnings warning could pressure broader market, analyst says
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NEW YORK (CNNfn) - The earnings warning by Compaq, and the way the company handled it, amounts to "sort of a disaster" that could damage the company -- and possibly the broader market, a top analyst said Friday.
     Compaq (CPQ) announced its reduced earnings expectations after the market closed on Friday, projecting results that were less than half what the investment community had been expecting from the No. 1 PC maker.
     That surprising news, coming after many traders had gone home for the weekend and as Wall Street prepares for earnings reports from many companies this week, could indicate a rough week ahead for the market, Ron Hill of Brown Brothers Harriman said on the "Moneyline News Hour with Lou Dobbs."
     Hill stopped short of predicting that this would be the shock that triggers a 10 percent correction in stocks, but he left open the possibility it might.
     Here are highlights of that interview:
     LOU DOBBS, ANCHOR: This warning, let me ask you, just in terms of the mechanics of it, this is a very late earnings warning, is it not?
     RON HILL, BROWN BROTHERS HARRIMAN: It is indeed very late, and it's really sort of a disaster, because revenues are slightly short but profits are going to be less than half of the Wall Street consensus, 15 cents vs. 31.
     DOBBS: Right.
     HILL: And to come on a Friday night after the close, when you can't call anybody in Houston to get an answer or an explanation is a very, very difficult thing for the Wall Street community.
     DOBBS: What do you think will be the reaction amongst the professionals to this?
     HILL: Obviously, I think swift and certain downgrades in earnings expectations obviously, most likely in ratings as well, and a sense that the management has sort of behaved badly here, and it'll take a while to re-earn credibility, I'm afraid.
     DOBBS: And Compaq for so long one of Wall Street's favorites. Wall Street always loves a winner, of course, and it has really taken a nose dive here. What do you expect to happen now?
     HILL: Well, I think, to the extent that you associate Compaq, obviously, with technology -- and you'll probably see more pressure on tech stocks, as we've already seen in after-hours trading. Technology has been a leader.
     And of course, Lou, most of the professional investment community has been looking for a pullback in this market for some time, and we've been looking for a catalyst. Perhaps this is it, but there's an awful lot of strength, obviously, in the leadership of the Internet side -- the consumer side of technology seems to be doing well, it's the corporate side of technology which is doing less well, and that's certainly what hurt Compaq's profits in the first quarter here.
     DOBBS: And in terms of the broader market, what a week we had. As everyone was worrying, you know, last week, another outstanding performance. What's going on?
     HILL: Increasingly narrow leadership. I mean regular viewers of this program would notice that, for most of these days we're setting new highs, and we're watching breadth decline, often having more new lows on individual stock prices than new highs on individual prices, even as the big-cap industries continue to hit new highs.
     DOBBS: Even though we reversed that trend today.
     HILL: Oh yes, ever so slightly, but we'll grasp at any good news we can get. We obviously got good help, also, from the European rate cuts this week, because it helped out bond market rally, and that generally takes some pressure off stock prices.
     DOBBS: What do you expect to happen with this market?
     HILL: I think we're going to continue to rise here for a while, and we get narrower and narrower. We're looking for the kind of catalyst that'll give us a 10 to 12 percent correction, which is a typical kind of spring-time phenomenon.
     If we were to see that, then I think you know you're ready to begin the next up leg. We still look for 11,000 on the Dow by the end of the year, 1400 on the S&P 500, so still more room to rise, I think, before the end of the year.
     DOBBS: Would you be a buyer here?
     HILL: I'd be a buyer on dips of stocks that I like. That's for certain.Back to top

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.