Hewlett-Packard (HPQ) Sustains Gains on CEO Optimism

NEW YORK (TheStreet) -- Hewlett-Packard (HPQ) shares popped early Thursday, rising 2.4% to $23.14, following gains of almost 9% on Wednesday following CEO Meg Whitman's optimistic forecast at the company's annual briefing.

Whitman assured investors that HP would "stabilize" in fiscal 2014 and accelerate growth in fiscal 2015, in line with the computer and printer maker's turnaround plans. HP is anticipating a 3.1% revenue drop in fiscal 2014, compared with a 7.7% drop in 2013. The company's operating costs are almost in positive territory after it reduced operating net debt by $8 billion over the 12 months to October.

The company will return at least 50% of fiscal 2014 free cash flow to shareholders through dividends and share repurchases. Free cash flow is expected in the range of $6 billion to $6.5 billion.

TheStreet Ratings team rates Hewlett-Packard Co as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about its recommendation:

"We rate Hewlett-Packard Co (HPQ) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, compelling growth in net income and impressive record of earnings per share growth. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, poor profit margins and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Powered by its strong earnings growth of 115.81% and other important driving factors, this stock has surged by 40.3% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Computers & Peripherals industry. The net income increased by 115.7% when compared to the same quarter one year prior, rising from -$8,857 million to $1,390 million.
  • HEWLETT-PACKARD CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, HEWLETT-PACKARD CO swung to a loss, reporting -$6.45 a share vs. $3.27 a share in the prior year. This year, the market expects an improvement in earnings ($3.55 vs. -$6.45).
  • The gross profit margin for HEWLETT-PACKARD CO is currently lower than what is desirable, coming in at 26.33%. Regardless of HPQ's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, HPQ's net profit margin of 5.1% is significantly lower than the industry average.
  • The debt-to-equity ratio of 1.01 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, HPQ has a quick ratio of 0.67, this demonstrates the lack of ability of the company to cover short-term liquidity needs.

Written by Keris Alison Lahiff.