This Day On The Street
Continue to site
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

Hewlett-Packard's Still Out of the Game

I expect HP investors will disagree. I also anticipate I will get more flak for this. But before you send in your irate emails, stop for a second and realize that as you applauded the 4% revenue beat of $29.1 billion, this still represent a year-over-year decline of 3%.

I will grant that the 73 cents per share profit (on the basis of generally accepted accounting principles) was a significant improvement from the $3.49 per share loss reported last year. But let's not forget that last year's loss was the result of the embarrassing $8.8 billion writedown HP absorbed from the botched acquisition for Autonomy -- a deal for which HP still faces several lawsuits from shareholders suing the company for failure to conduct due diligence.

What's more, look at the non-GAAP basis, where fourth-quarter earnings did meet Street expectations at $1.10 per share. That, too, represented a year-over-year decline of 13%. And when you consider that cash flow from operations was down more than 30% year over year, I really don't see what there is to get excited about, especially when margins declined year over year by more than a full point (1.4%). Interestingly, though, even when there's a portion of the business that does well, it somehow turns into a disadvantage.

[Read: Yes, Apple's Still on Track for $600]

For instance, while HP continues to lead the PC market share (by shipments) at 27%, which more than doubles Apple's (AAPL) market position at 13%, HP's Personal Systems business still posted a 16% decline in profits. What this means is that HP is virtually giving away each PC it sells since that business generates only 3% operating margin.

Last but not least, despite my recent criticism of Meg Whitman, the one thing that I have always appreciated about her is that she has always been forthright about the company's situation. Unlike her predecessor, Whitman has never tried to make HP appear better than it really is.

However, while promising investors that it would take five years to turn around the company, Whitman also said that growth would return in year three. That's right around the corner. But following the recent conference call, she told analysts not to expect growth in 2014. Inexplicably, the stock jumped 9%.

And given that research firm Canalys projects that tablets will account for more than 50% of all PCs sold in the coming year, HP's deficit in personal devices will only loom larger, especially when margins are on the decline. All told, given the across-the-board revenue and profit declines, this was (at best) a quarter that was less bad than expected. Accordingly, I wouldn't jump on this stock right here.

At the time of publication, the author was long AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

2 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
Only $9.95
14-Days Free
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
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
HPQ $12.27 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs