HP Has $25 Written All Over It

Mar. 6.13 | About: HP Inc. (HPQ)

HP (NYSE:HPQ) priced at $20 this week making good on my prediction. So where do we go from here? To $25, of course.

The reasoning:

1. HP might just find David and Bill's garage again and do some real fine innovative work again. Look at HP's recent commitment to R&D, something that was lacking for years. HP spent $3.4 billion on its research budget in 2012, higher than in the prior three years. It is moving a much higher percentage of its operating cash flow over to R&D. The investment is nice to see after years of R&D neglect.

(My data sourced from Qs and Ks.)

2. No more multibillion dollar "white elephants" like Autonomy and EDS. Good to her word, Meg Whitman has really sworn off HP's old shopaholic ways and stopped the overpriced M&A. Kudos to her. Again, the proof:

(Sourced from Qs and Ks.)

3. It's still cheap. Price to sales is a very modest 0.33. EV:FCF is a low 8.64. Both metrics are well-under its 5 year average. HP throws off a ton of cash. Free cash flow was $6.9 billion - remarkably high for a company with a market cap of only $40 billion.

HP has its mojo back again. My new price target: $25.

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