Hewlett-Packard Shares Fall on Printer Slump Speculation

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Date: Tuesday July 17, 2012 09:56:54 am
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    Hewlett-Packard Shares Fall on Printer Slump Speculation

    Hewlett-Packard Co. declined to the lowest intraday price in more than seven years after a competitor in the printer market predicted a slowdown in corporate purchasing.

    Hewlett-Packard fell 2.2 percent to $18.92 at 12:34 p.m. in New York, and earlier dropped to $18.77, the lowest intraday price since November 2004. The stock  had dropped 25 percent this year through yesterday.

    Printer-maker Lexmark International Inc.  cut its second- quarter sales and profit forecast yesterday, citing weaker demand from customers in Europe and unfavorable exchange rates. Lexmark said the trends would probably affect results in the second half of the year as well.

    Hewlett-Packard got almost a fifth of revenue  and more than a quarter of operating profit from its printing unit in the second quarter that ended in April. The company said in March it would combine its personal-computer unit with the printer division to help cut expenses amid declining sales and profit.

    “Lexmark is really the driver in the weakness in Hewlett- Packard today,” said Brian White, an analyst at Topeka Capital Markets, based in New York. “Printing is one of the most important pieces of Hewlett-Packard’s market as a company, and people don’t want to upgrade their printers.”

    http://blogs.barrons.com/techtraderdaily/2012/07/13/hp-weak-valuation-means-break-it-up-says-jp-morgan/
    HP: Break it Up, Says JP Morgan
    JP Morgan’s Mark Moskowitz this morning reiterates an Underweight rating on shares of Hewlett-Packard , writing that while the company’s results at the moment are under pressure because of its attempted restructuring, and macroeconomic malaise, nevertheless the long term is “not any better.”

    HP’s attempt to slash costs will not help profit, he writes, because it must be reinvested if the company is to have a future:HP is targeting $3.0- 3.5 billion in cost savings related to its PSG-IPG combination by F2014. In our view, HP likely will have to reinvest most of its targeted cost savings into the model transformation. This dynamic likely will coincide with a challenging revenue growth environment over the next 12-18 months, which means that HP’s F2013 EPS could trend lower than we expect. Currently, our F2013 EPS estimate is $4.09, versus the Street consensus of $4.40.

    Moreover, on the heels of printer maker Lexmark‘s (LXK) warning last night it will miss Q2 expectations for revenue and profit by a wide margin, Moskowitz thinks that “printing does not sound too good”:

    In our view, investor expectations for HP’s printing business are fairly muted. Despite this cautious stance on the part of the investor, we think that the magnitude of the potential revenue miss in the July and October quarters could lead to another downward reset in investor expectations.

    Moskowitz notes the stock has an implied enterprise value of $88.6 billion, or $44.77 a share. Given the stock trades at $18.89 this morning, he thinks investors want the company to break up, jettisoning the printer and PC businesses:

    We are skeptical of a narrowing of this valuation gap. Reason being, HP appears intent on continuing to work with its stable of assets rather than divest one or more parts. In our view, if HP is serious about becoming a value-add enterprise IT solutions provider, then the PC and imaging/printing businesses should be considered no longer integral to the long-term model transformation. Both end markets possess meek long-term growth profiles owing to competitive dynamics and changes in end user behavior. We believe that the divergence in the valuations of the current stock price and our sum-of-the parts analysis’ implied stock price suggests that investors would be interested in a break-up of the company, as the current portfolio is not extracting value on par with the respective segment comp groups.

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