Why Hewlett-Packard (HPQ) Is Gaining Today

NEW YORK (TheStreet) -- Hewlett-Packard  (HPQ) gained 3% to $29.70 Thursday after Bank of America Merrill Lynch upgraded the electronics giant to "buy" from "neutral."

Analysts Scott D. Craig and Samuel Park raised their price target on HP to $39 from its previous $29. The analysts based their upgrade on HP's "stable-to-slightly increasing EPS revisions" during the company's restructuring, strong FCF generation, and its "commitment to shareholder returns of 50% of FCF in dividend and buyback." Poor investor sentiment and HP's ability to close its P/E gap on peers such as IBM (IBM) and Xerox (XRX) also contributed.

The analysts predict earnings per share for fiscal 2014 and 2015 between $3.66 and $3.84 a share, compared to Wall Street estimates of between $3.66 and $3.76 per share.

The upgrade comes a day after HP announced its re-entry into the smartphone market with two new "voice tablets" destined for India.

TheStreet Ratings team rates HEWLETT-PACKARD CO as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their 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, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including 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 120.91% and other important driving factors, this stock has surged by 74.19% 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.
  • HEWLETT-PACKARD CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, HEWLETT-PACKARD CO turned its bottom line around by earning $2.62 versus -$6.45 in the prior year. This year, the market expects an improvement in earnings ($3.66 versus $2.62).
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Computers & Peripherals industry and the overall market on the basis of return on equity, HEWLETT-PACKARD CO has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • The gross profit margin for HEWLETT-PACKARD CO is currently lower than what is desirable, coming in at 25.74%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 4.85% significantly trails the industry average.
  • Net operating cash flow has decreased to $2,816.00 million or 30.62% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

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