Barron's says Hewlett Packard's (HPQ) earnings-per-share and valuation may benefit from some unorthodox bookkeeping. Of all the big-tech stocks Bernstein analyst A.M. Sacconaghi covers, H-P is the only one that excludes "intangibles amortization" expense from reported earnings. What this means is that H-P's earnings fail to account for amortization on its acquisitions, such as recent purchases of Opsware and Mercury Interactive. H-P says it excludes amortization on acquired property from per-share earnings because "acquisitions are not an integral part of its operating model." Sacconaghi says that argument is hard to buy, considering the firm spent $7.3 billion on ten acquisitions over the past year alone. He calculates the exceptional treatment accounts for about $0.21 of H-P's $0.86/share earnings. Accounting for 'intangibles' would also change H-P's peer comparisons: H-P trades at 14.7x 2008e profits, vs. 13 times for IBM (IBM) and 15.8x for Dell (DELL); booking intangibles as the others do would move H-P's multiple to 15.6x earnings. While H-P may not be the only company making use of such antics, Barron's says investors should bear this fact in mind. Sacconaghi says he has a hard time seeing much more multiple expansion in store.
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