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Updated with new analysis regarding HP's job cut announcement on May 17, 2012.
NEW YORK (
TheStreet) -- In a move that should not come as a surprise,
Hewlett-Packard(HPQ - Get Report) has announced that it plans to eliminate as many as 30,000 jobs or 8% of its global workforce. How it plans to enact these layoffs remains to be seen. Although there are advantages to easing into it and being more deliberate, an option that will take more than 12 months, the company may also decide to conduct its cuts in massive quantities. However, what is certain is that it is once again committed toward raising shareholder value and competing more effectively with the likes of
Apple(AAPL - Get Report).
As tough as it is to applaud job cuts, from an investment standpoint, the company deserves a considerable amount of credit for what is indeed a difficult decision -- and it would appear that Wall Street agrees by the sudden uptick in the stock upon the news. As conservative as I have been when appraising stock valuations, I will admit that I do tend to get that itchy trigger finger when I see companies that are trading considerably below their fair market value, particularly in the tech sector. Finding these gems not only requires a considerable amount of due diligence, but remarkably, sometimes they are easily overlooked even when they are staring investors dead in the face.
For many, the thinking is, since the market is presumed to be always right, why bother? But this is where investors often make the mistake of confusing "market sentiment" with "value" -- two entirely separate terms. I think this announcement now, along with some recent earnings, currently undervalues the stock by 60%.
Although HP's stock has languished for the better part of the past three quarters, the company's new strategic direction not only makes sense from the standpoint of its competitive leverage within the enterprise against rivals such as
Cisco(CSCO - Get Report) and
Dell(DELL), but HP is now looking to take a bite out of
Apple. And it has done this by trying to duplicate Apple's unified platform advantage -- hence the reason for these layoffs.
From that standpoint, not only is HP poised for tremendous growth over the next four years, but it has also positioned itself to increase its profit margins in a relatively short period of time. That said, it will require a considerable amount of patience to realize this value, but the company has recently shown a focus that I have not seen for quite some time.
How is it going to happen?
In an attempt to reduce costs while also seeking to improve its ability to innovate and produce products that appeal to consumers, Hewlett-Packard recently decided to consolidate its two most profitable businesses -- of which combined for almost $65 billion in sales last year, or over half of the company's revenue. Though the company initially described it as creating "go to market synergies" and placing a huge bet on lowering its CAPEX, I couldn't help but to notice the similarities as well as advantages offered with Apple's famed "ecosystem."