Goldman Cuts Gateway Price Target by 25%

Earlier I mentioned that W.R. Hambrecht was holding out hope for PC-maker Gateway (GTW) after an ugly quarterly report Thursday morning, but that Goldman Sachs analyst David Bailey expressed concern about the company’s deteriorating balance sheet and dwindling revenue.

Well, Bailey has revised his estimates sharply downward for the company, projecting losses per share this year and next of 1 cent and 2 cents, respectively, down from profit per share estimates of 3 cents and 4 cents. And he’s cut his price target from $2 to $1.50, based on a discounted cash flow model.

He says support for Gateway shares “is quickly evaporating,” as “an increasing mix of retail against the backdrop of more competition for shelf space from Dell (DELL), Acer, and Lenovo (LNVGY.PK) should continue to pressure both revenue growth and overall profitability.” The cash balance he says, “will likely continue to come down while inventory and supply chain management appear to be stressed, with internal inventories spiking 20% quarter-over-quarter and channel inventories growing by two weeks.”

$8 million per quarter that Gateway has been receiving from Microsoft (MSFT) from a legal settlement is expected to expire at the end of next year, another leg popping off of the stool. Even worse, the notion Gateway will get bought out is vanishing: “The chance of a buyout, which has given some support to the stock, is going away given a weaker credit market.”