Bear Stearns Downgrades Gateway

Analyst Andrew Neff also cut his earnings estimates after the PC maker reported results

Gateway (GTW ) posted 5 cents second-quarter (GAAP basis) earnings per share, vs. 91 cents loss. Bear Stearns downgraded the stock and cut estimates.

Analyst Andrew Neff says the downgrade to underperform from peer perform is based on continued light revenue (the company has yet to hit Street targets which is a key turnaround metric); challenged quality of EPS; reduced 2005 outlook; weak growth prospects for direct business; and lack of compelling valuation, which suggests more downside.

Neff notes that management cut 2005 revenue guidance to $3.9 billion to $4 billion from $4 billion to $4.25 billion, and non-GAAP EPS guidance to 13 cents to 15 cents from 17 cents to 19 cents. Hence, he lowered 2005 EPS estimate to 9 cents from 15 cents, 2006 to 15 cents from 25 cents (non-GAAP), and his target price to $2.60 from $4.10.

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