Would HP Shares Be Higher If Mark Hurd Was Still CEO?

by: Bachar Samawi

Hewlett-Packard Company (NYSE:HPQ) shares are currently trading at $23.03 as of 3/22/2012. To say the least, since the departure of Mark Hurd from HP in August 2010, the performance of HP shares has been quite dismal. Shares are down 10.6% year-to-date, down 45.3% since 12/31/2010, and down 48.8% since July 2010 just prior to Mr. Hurd's departure. There is no question that there are numerous factors that have affected the performance of HP shares, but had Mr. Hurd remained at the helm of HP, could the results have been quite different?

Hewlett-Packard Company Stock Price Chart July 2010-March 2012

Source: Yahoo Finance

Prior to joining HP, Mark Hurd was CEO for NCR Corp. (NYSE:NCR) from March 2003 to April 2005. During that period, NCR shares increased by 301% from 2/28/2003 to 2/28/2005 (on a dividend and split adjusted basis). That's an average of 150.5% per year on a non-compounded basis, or 100% per year on a compounded basis.

NCR Corp. Stock Price Chart 2003-2005

Source: Yahoo Finance

While Mr. Hurd was CEO at Hewlett-Packard from 2005 to 2010, HP did quite well, recovering from its recent woes while Carly Fiorina was CEO. Under Mr. Hurd's leadership, HP stock price increased by 129% from March 2005 through July 2010 (on a dividend and split adjusted basis). That's an average of 24.2% per year on a non-compounded basis, or 16.8% per year on a compounded basis.

Mr. Hurd resigned from HP due to pressure resulting from allegations about unauthorized business expense reports as well as a relationship with an employee. Hence, some could possibly argue that had Mr. Hurd remained with HP, he would have possibly caused HP reputational hazard. However, we have focused on Mr. Hurd's business expertise, as we assume Oracle corporation had done by hiring Mr. Hurd as president following his departure from HP.

Hewlett-Packard Company Stock Price Chart 2005-2011

Source: Yahoo Finance

Most recently, Mr. Hurd has joined Oracle Corporation (NASDAQ:ORCL) as its president since September 2010. Although he is not CEO, Oracle shares have increased by 34.6% from 9/1/2010 to 3/20/2012 (on a dividend and split adjusted basis). That's an average increase of 23% per year on a non-compounded basis, or 22% per year on a compounded basis.

Oracle Corporation Stock Price Chart 9/1/2010 to 3/20/2012

Source: Yahoo Finance

Mr. Hurd's business performance track record is quite impressive. Whether at NCR, HP, or Oracle, shares of such companies seem to appreciate while he is there. Had he remained at HP, what could have turned out different? Some may argue that there was nothing he could have done, as the PC industry was actually in decline. However, Mr. Hurd has always been known to possess three major strengths: 1- ability to improve operating efficiency (hence margins), 2- ability to improve financial performance (hence profits) and 3- ability to focus his company on the customer (hence non-commoditization and product differentiation).

All such talents are exactly what HP seems to be lacking today. Even if Mr. Hurd presented reputational risk for HP, resulting in no choice but for his ultimate departure, had HP maintained focus on such three principles, the fortunes of its share price could have been much different. Those who bemoan the demise of the computer industry should beware, as NCR's original cash register business is even more outdated than the PC, and yet NCR did very well while Mr. Hurd was there, as he improved its margins, migrated to customer oriented products and succeeded in increasing profits substantially. Just as a souvenir, here is a picture of NCR's original business (the company used to be called National Cash Register):

Source: Wikepedia
Sometimes, a single person can indeed make a difference for a company. Similarly, in absence of such person, the application of a single person's forte can also turn fortunes around. Think of what Steve Jobs did for Apple Inc. (NASDAQ:AAPL). In an article we published on 8/26/2011, "Apple without Jobs: it's how it works, not just how it looks", we identified Steve Jobs' formidable strength of how he defined creativity as he said: "creativity is just connecting things". It sounds very simple, but very few people can actually connect things as well as Jobs did. That talent was the catalyst for building a half a trillion dollar company. Similarly, think of what Bill Gates did for Microsoft (NASDAQ:MSFT). It is virtually impossible to think of Microsoft, and not immediately associate it with Bill Gates.

We will not compare Mr. Hurd to Mr. Jobs nor to Mr. Gates. Circumstances surrounding Mr. Hurd's departure from HP were indeed very regretfully to all. Nevertheless, Mr. Hurd did have the talent to improve operating efficiencies, improve financial performance and focus his company on the client. More importantly, he had the track record to prove it. Given HP's recent restructuring efforts by combining the printer and personal computer groups, it is possible that HP is now addressing its operating efficiencies. However, consolidating sales, marketing and communications will not necessarily focus HP on its client; as a matter of a fact, such consolidation could create further distance between HP and its clients, as the needs of PC clients could differ from the needs of printer clients.

Had Mr. Hurd remained at HP, it is very possible that HP would have overcome its current challenges by the application of Mr. Hurd's business expertise. On the other hand, it seems that Oracle Corporation has overcome reputational risk by hiring Mr. Hurd. If Mr. Hurd's business track record is any indication, and to be on the conservative side, had he maintained the lower end of his track record of 16.8% to 22% annual compound increase in HP's stock price, it is then possible that HP would be trading today at $62. On the other hand, had he repeated his track record of 100% annual compound rate of return at NCR, HP would be trading at $142 today; but let's not get carried away here... Maybe HP had no choice but to navigate its future without Mr. Hurd, but why not attempt to maintain those three business principles...

As HP is at the least trying to improve its operational efficiencies, and given the substantial drop in price that it has witnessed, this is probably a good price to buy HP for the long term, especially if HP ends up also focusing on its customers (despite its reorganization) and on improving its profitability. Meanwhile, given Mr. Hurd's track record, Oracle can also prove to be a good value at these levels.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.