This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

HP Sales Fall Short: Investors Take Note

Chris Lau, Kapitall: HP reported declining sales in the last quarter – maybe it's time to reconsider this tech titan. 

When Hewlett Packard (HPQ) reassigned its head of enterprise hardware ahead of quarterly earnings, it was not a good sign. Sure enough, HP reported earnings that missed sales estimates and shares dropped nearly 15% for the week. It might be time to look at HP again.

[Read more from Kapitall: What Investors Should Know as Football Season Approaches]

Earnings rundown

HP earned $0.86 per share on revenue of $27.22 billion. Sales declined 8% from the previous year. PC sales continued to be a problem for HP, as sales dropped 11% compared to last year, due mostly to the 22% decline in the consumer division. Despite a design refresh for notebooks, sales still declined here by 14%. Needless to say, enterprise hardware sales dropped by 9%, due to a weakness in sales of business critical systems, x86-based servers, and storage.

But there are some bright spots. Free cash flow was $2 billion. And HP replaced its enterprise hardware chief with its COO, Bill Veghte. For fiscal 2013, the company expects earnings to be at the lower end of consensus, between $3.53 and $3.57 per share. At a recent price of $22.27, HP is valued at a forward P/E of 6.2.

Analysis

HP continues to be an inexpensive stock, but with lots of uncertainty ahead. The company has a solid cash flow, pays a dividend yielding 2.6%, and is in the midst of a multi-year transition. Investors with a longer-term investment time frame will be rewarded if the executive reshuffling improves operating efficiency. HP has many areas for potential growth, including the enterprise hardware and software space, tablets, laptop computing, and mobile computing solutions. 

Potential catalysts

Analysts might make calls to enhance shareholder value on October 9, by demanding a share buyback, another acquisition, or further cost cuts. A refresh to Microsoft’s (MSFT) Windows 8, code-named “Windows Blue” and due mid-October, could still improve demand for PCs. HP is valued at half that of Microsoft, measured by forward P/E (or “price of profit”):

In the near term, shares of HP might drift lower as investors digest the weak quarter. Looking further out, HP could be a bullish play for investors confident the company's turnaround plan is on track. 

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG

Markets

DOW 17,925.07 -210.65 -1.16%
S&P 500 2,075.34 -25.70 -1.22%
NASDAQ 4,934.0880 -48.7210 -0.98%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs