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HP's Results Do Little to Quell Investors

HP posted solid results on Thursday, but investors are still waiting for significant news on the company's CEO search.

PALO ALTO, Calif. (


) --


(HPQ) - Get HP Inc. Report


solid third-quarter results

after market close on Thursday, but investors await significant news on the company's CEO search were left disappointed.

After the shock departure of Mark Hurd earlier this month, there is serious pressure on HP to recruit an executive capable of filling its former CEO's shoes. HP's interim CEO Cathie Lesjak gave no indication of when Hurd's replacement will be appointed during a conference call with journalists late on Thursday, leaving a major question mark hanging over the company's future.

As a result, investors are underwhelmed by HP right now, despite its strong third-quarter showing. The company's stock dipped 48 cents, or 1.18%, to $40.28 in early Friday trading, and it's not expected to bust out any time soon.

"Hewlett-Packard's valuation appears very attractive, though we don't expect much from the stock until a new CEO is appointed and able to articulate a strategic vision for the company," explained Jayson Noland, an analyst at R.W. Baird, in a note released on Friday.

Speaking during the media conference call, Lesjak stressed that HP's strategy will not change in Hurd's absence and added that the company has a talented, strong management team in place.

The abilities of executives such as Lesjak and

HP's enterprise chief Ann Livermore

are not in question, according to Vanessa Alvarez, an analyst at Frost & Sullivan.

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"The Hurd scandal will not impact the performance of the company; even though Hurd is no longer there, when you put a team in place like the one heading up HP now, it can almost run itself," she explained in an email to


. "The true impact will happen when they finally find a replacement for Hurd."

Alvarez feels that an external hire could be particularly risky for HP, with the new CEO potentially disrupting the company's strategy. "HP would be smart to look inside," she added.

Earlier this week, HP hired executive search firm Spencer Stuart in a bid to find Hurd's replacement, and has promised to consider both internal and external candidates.

The good news for investors is that HP put out decent numbers even while searching for its new leader. HP's PC business, for example, grew 17% year-over-year during the third quarter and the company's Enterprise Storage and Servers (ESS) division grew 19%.

The tech bellwether, which hit Wall Street's overall revenue and earnings estimates, also gave solid fourth-quarter guidance.

"HP had a great quarter, no doubt, and even though enterprise spending has been tepid at best, they continue to grow in their core areas," explained Alvarez.

R.W. Baird analyst Noland also maintained his market outperform rating on HP, pointing to its potential for recurring revenue in areas such as services and printing. "We continue to view HP as well positioned to benefit from a medium-term hardware replacement cycle and the longer-term theme of data center consolidation," he added.

The company's future strategy, however, may require a bigger focus on software, which is currently a small part of HP's overall business. HP's software revenue was up just 2% to $863 million during the third quarter, just a fraction of the company's total revenue of $30.7 billion.

As rival


(IBM) - Get International Business Machines Corporation Report

has proved, high-margin software sales can be a major growth driver, and HP would be prudent to follow Big Blue's lead. Intriguingly, there has even been speculation linking

IBM software chief Steve Mills

to the vacant HP hotseat, although it could be some time before we know the identity of the company's new supremo.

-- Reported by James Rogers in New York

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