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H-P's Hollow Numbers Hoodwink After-Hours Bulls

Justin Lahart

Trading in the after hours has always been considered a dangerous pursuit. Thanks to Hewlett-Packard (HWP Quote - Cramer on HWP - Stock Picks), many investors are finding that out for themselves.

The boxmaker posted what appeared to be a blowout fiscal third quarter after the close last night, pulling in earnings of 97 cents a share -- 12 cents above the First Call/Thomson Financial consensus. The stock flew, rising 9 7/16 from its New York close to finish at 120 7/8 in composite trading (trading on things like the Pacific Stock Exchange).

Meanwhile, Hewlett's conference call wasn't going well, as TheStreet.com documented in an earlier story. The company's normally impressive CEO, Carly Fiorina, didn't inspire the usual confidence, and the great numbers started to seem less than great.

The 97-cent number included 4 cents of nonoperating items, including currency-exchange gains. Moreover, Hewlett had benefited from a lower-than-expected tax rate that hadn't been reflected in analysts' estimates. That added another 4 cents or so, meaning the operating number, when all was said and done, was somewhere in the area of 89 cents, in some analysts' estimates. While that certainly represents increased earnings, it doesn't show accelerating growth. And growth is what this market is all about -- particularly when it comes to technology stocks.

Anyone familiar with the company, anyone paying attention to the conference call, could have seen the way the wind was blowing. But clearly some investors fell into neither of those camps.

No Pain, No Gain

"What a scam," says Scott Curtis, a trader at Kaufman Brothers. "Those guys were paying 120 last night -- thanks a lot. They learned the lesson the hard way."

Even after the call was over Hewlett continued to do well -- even during the early hours of premarket trading this morning, when it was trading between 116 and 118 on Instinet. As analysts filed their reports on Hewlett, however, things changed.

"We would not be surprised if the stock is under pressure in the near term," wrote PaineWebber analyst Don Young as he cut fourth-quarter earnings estimates to $1.01 a share from $1.03. Prudential's Kim Alexy cut her target on the stock to 125 from 133. And Bank of America Securities' Kurtis King cut the stock to a buy from a strong buy.

"Unix growth -- the swing factor in our view -- was disappointing, and management's 100% bullishness will be viewed as less credible after last quarter's results," wrote King. "We still like the story but don't see upside for the stock in the near term."

And that lack of enthusiasm for the stock has infected trading desks as well. "Our general take," says one trader, "it is not to rush into at all." The trader said that had there been strength in Hewlett this morning, his shop would have used it as an opportunity to lighten up. But there is no strength.

Hewlett has fallen, lately trading at 109 11/16 -- down about 2 from its New York close and more than 11 from the composite close. Anyone who bought last night is having a hard day today. Anyone who sold -- well, drinks are on them.