H-P Bulls Riding Hurd

Investors have shown much love for Hewlett-Packard(HPQ Quote) this year, with its stock climbing to new heights. And the Palo Alto, Calif., computer maker's financial report on Thursday came through like an aphrodisiac.

Shares of H-P were recently up 1.2% on Friday to $29.36.

H-P dazzled investors with a bottom line that soundly outpaced analysts' expectations. The company's fiscal fourth-quarter profit of $1.7 billion, or 51 cents a share, excluding various charges, was 5 cents above Street expectations. And while revenue growth going forward will be moderate, the company projected continued profit gains for the year ahead.

For many investors, this was evidence enough that the turnaround occurring under the helm of CEO Mark Hurd was working.

"This company is really turning it around -- there's no question in my mind," said Dave Schamens, a partner at hedge fund Invictus Funds, which is now looking at H-P as a long-term buy. While some of the credit should be shared between Hurd and his predecessor Carly Fiorina, who was ousted in February, Schamens said, "Let's just say I think Hurd is taking it in the right direction."

The company's enterprise server and storage group demonstrated how much room for operational improvement there was. The division produced the biggest pop in margins, with a 9.1% operating margin, up from 2.5% a year ago. This resulted in a $405 million operating profit, which went a long way toward boosting the companywide EPS.

And while the software group's $27 million profit was relatively modest, it symbolized the unit's first-ever profit.

"Our view is that H-P is evolving into an earnings-leveraged turnaround, as it fixes a decade of unresolved cost problems and transitions from an inefficiently managed company," Bear Stearns analyst Andrew Neff wrote in a report on Friday, raising his 2006 and 2007 estimates for the company. Bear Stearns has provided investment banking services for H-P within the past 12 months.