Archive for September 27th, 2010

Article from Seeking Alpha.

“It barely matters who Hewlett-Packard (HPQ) finds to replace Marc Hurd as CEO.

This stock is cheap on almost every measure, and should rally along with the rest of tech when his predecessor is named.
Which, by the way, could be very soon.

By now you know the story of Hurd… who left in August amid a sexual scandal.

The stock took a drubbing on his departure, down about 18 percent to the August trough. As a result, the stock is mired in questions, and has completely missed the 9.5 percent tech rally in September.
And it now trades at an ultra-low 8 times forward earnings, versus 9 times for rival Dell (DELL), and about 11 times for IBM (IBM). At this point, H-P can gain 20 percent if it can simply get to the mean PE of its two peers.
And H-P has one of the lowest StarMine intrinsic value multiples of all stocks in North America. Stocks trading at similar intrinsic value discounts in a 10-year backtest had a three-month return of 14 percent.
There’s no denying that Hurd’s exodus was a blow. He spearheaded five years of tough cost cuts at H-P that didn’t happen under his predecessors. But at this point, the fat on this one-time Silicon Valley sow is gone. So whoever takes over should have a fairly easy time making the EPS numbers.
The real challenge for the incoming CEO is growth. H-P took some early steps to address that problem in the past few weeks, with two announced deals that should bring in high-margin revenue in the future.
There’s some griping that H-P paid too much for ArcSight and 3Par. But most of that comes from IBM CEO Sam Palmisano, who is publicly reveling in H-P’s recent misery.
Let’s dispel some of the Street’s other big concerns about H-P. One is that the company is somehow rudderless. That’s hardly the case. H-P has always had some of the best lieutenants in the business, dating back to the Lew Platt regime. Don’t be surprised if an internal CEO is named.
The company will benefit if it now finds an innovation leader to take the helm – one that can help finish off the progress Hurd made in emerging markets.
Another is that H-P could make a bad CEO choice. That’s possible. But no one will know that for at least a year. What’ s more likely is HP shows great EPS numbers for the first few quarters under a new regime.
A broader worry for all of tech hardware is a consumer spending slump. It’s true, anecdotal signs are that back-to-school hasn’t been great. But the comparison period a year ago was a total barnburner. It’s hard to expect anything different.
Instead, the Street should be looking at the strengthening refresh cycle on the corporate side. Companies are replacing aging computers and servers because they no longer have a choice. That should benefit H-P all the players heading into next year.

H-P’s stock chart is not pretty. But there’s strong volume-at-price support around $37.50. At roughly $39.50, that means there’s a 1-to-3 risk reward ratio on a bet this stock closes this gap, and gets to $45.50.”

Read the full article here.

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