Don't Count Out HPQ

After the close yesterday, Hewlett-Packard Company (NASDAQ – HPQ - $25.38) announced quarterly financial results and updated its 2014 revenue outlook.  By all accounts, the news was bad and the stock got hammered in the after-market. But, let's not be too hasty here...

The first item to consider here has nothing to do with numbers or financial results, but leadership.  To use a sports analogy, when you constantly shake things up and hire a new coach (CEO), there is no continuity, no long-term vision.  Meg Whitman is a proven commodity as a CEO, and it is still to be determined what she can do here.  Just yesterday there was another shake-up at the top as it was announced that David Donatelli, head of the HPQ Enterprise Group, is being re-assigned.  This is the second high-level management change in the last few months.

Let the selling drive the share price down. Depending upon the magnitude of the sell-off, the courageous may wish to step in and buy shares or out of the money calls in a stock that trades around 7x FY14 EPS estimates based on yesterday’s close and even less of a valuation pre-market. Even if the forecasts are reduced there is still value here. Let’s face it, despite the tough PC environment and slowing revenue growth, HPQ is not going away anytime soon.

Have a great day.

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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