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HP Has Plenty of Problems and Few Solutions

Stocks in this article: HPQ MSFT CSCO

NEW YORK (TheStreet) -- Shares of enterprise giant Hewlett-Packard (HPQ) have been on an incredible run. But it can't do business indefinitely in a weak PC environment. Management must address the company's cloud and mobile strategies. 

At around $32.45, its shares are up 16% for the year to date. Since the stock bottomed at $11.71 in November 2012, the company has seen its value soar close to 200%, reaching a 52-week high of $33.90.

But from a value investment perspective, is there any value left in a company struggling with growth?

No one's going to deny HP has taken some meaningful strides under CEO Meg Whitman. But the company's core businesses are  decaying and too much has been made about the so-called stability of the PC industry.

Whitman has offered some positive remarks and an upbeat outlook. But PC growth, which makes up roughly 30% of HP's sales, isn't coming back. Making matters worse, Microsoft (MSFT), a once-proud OEM partner to HP, just released its third iteration of its Surface tablet. This, in my opinion, effectively kills off any hope that PC's might pull-off a late-stage rally. It isn't going to happen.

To date, whether in hardware, software or in the enterprise, there has been no meaningful growth at HP. The company's services and software divisions, which accounts for 42% of revenue, reported a decline in the recent quarter. Business conditions have not been all that great.

At this point, it's a mistake for investors to assume that a return to growth, which is presumed in the stock price, is imminent. There's still quite a lot of work for Whitman to do to fully realize this turnaround. With a resurgent Cisco (CSCO) looking more confident, any plan Whitman comes up with won't be easy to execute.

Hewlett-Packard will report its fiscal second-quarter report Thursday. The Street will be looking for 88 cents in earnings per share on revenue of $27.4 billion, which would represent a year-over-year revenue decline of 1%. Analysts have grown more optimistic, however.

Since the February quarter, revenue estimates have grown by $26 million. On a full-year basis, the Street is projecting earnings per share of $3.71 on revenue of $111.15 billion. Full-year revenue is expected to decline 1%, while earnings it expected to grow by more than 4%.

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