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Hewlett-Packard (NYSE:HPQ) is a name that has provided spectacular returns year to date, with the shares appreciating 75% over the last five months. While it seemed a bit absurd that the company was trading for ~4x the projected earnings for the year given at its investor day, there were concerns that the company would not be viable going forward. However, with the quality of its highly levered balance sheet, I think it is safe to say that these fears are no longer with the investment community and that the question now remains whether the company can return to top and bottom line growth.

Compelling PC Lineup Signals Corporate Signs Of Life

While the firm's cash-cow divisions (printing and other enterprise services and solutions) seem to be holding up, I would like to point out that the reinvigorated innovation that appears to be happening in the firm's PC lineup is indicative of the renewed spirit of innovation at the firm. When it is within a company's DNA to do things well, it generally propagates throughout the entirety of its product offerings.

In particular, HP made it clear that it would be "going for the gusto" with its upcoming Ultrabook/PC and tablet lineups. After the fairly pathetic showing of the PC industry in 2012's back-to-school season, it seems that HP -- among others - is fiercely competing to win back the consumer wallet share with new products. These include:

  • A 14" Ultrabook with a 3200x1800 touch display (out-Apple'ing Apple (NASDAQ:AAPL))
  • A 10" Google (NASDAQ:GOOG) Android tablet for consumers based on Nvidia's (NASDAQ:NVDA) powerful upcoming Tegra 4 chip
  • 20 and 23" All-In-One touch PCs/adaptive all-in-ones that could help drive a refresh in the desktop PC space, which has traditionally been rather stagnant as consumers find less of a reason to upgrade
  • A 14" "Sleekbook" for $479 and an 11" touch enabled PC for $399

The designs themselves seem quite good, and from a potential investor's point of view, it is very exciting to see HP really focus its energies on delivering products that consumers and businesses alike find aesthetically and functionally compelling.

See, while I think this could help reverse some of the negative market share trends that HP faces in the already fierce PC space, it is more of the message that HP and its new management team is sending out to investors: "We are innovators and we will strive to make compelling products across the board." This is what a turnaround story should be all about -- committing to "doing things right."

Financials Look Good

HP also makes a boatload of money. With projected EPS of $3.50-$3.60 for the year, it's not as though HP is a turnaround that is bleeding cash left and right. This is a behemoth with 300,000+ employees that is also massively profitable. Even at the low end of the range, HP trades at a mere 7x FY2013E earnings -- so shares are still cheap.

While my colleague Dana Blankenhorn believes that there's not another doubling left in the shares, I disagree. If this company can really turn it around and generate positive top and bottom line growth over the next couple of years, I see no reason why a more market-like multiple of 12-13 could not be assigned to potential earnings power north of $4.00/share. This would imply a share price of $48-$52 -- another doubling over the next year or two!

Conclusion

I think HP is a "buy" on any pullback, and my only regret is not hopping on board this train before the earnings report. That being said, I'm not someone who likes to make the same mistake twice, and on the next down day, I plan to start a long position in this technological behemoth. The worst is behind it, even if blue skies may be a few years away.

Source: HP Could Double... Again