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By Carl Howe

Hewlett Packard will report earnings at the close of trading today, and most analysts are still on their honeymoon with CEO Mark Hurd's cost-cutting management. General consensus is that the company will report $0.44 EPS, with some possibility of upside surprise.

But the real question is what the reaction to what could be good earnings will be. After all, Apple blew out its quarter, and the stock was punished about 10 percent. So, to try to get some insight into the numbers driving HP sentiment, let's compare the numbers between these two companies as they sit pre-earnings announcement:

Hewlett Packard Apple
Revenue $86.7 billion $16.2 billion
Trailing Price/Earnings 39 36
Profit margin 3% 10%
Operating margin 6% 12%
Quarterly revenue growth year-over-year 7% 65%
Quarterly earnings growth year-over-year -62% 92%
Cash $13.9 billion $8.7 billion
52-week stock price change +54% +53%

So assuming the company improves its quarterly revenue growth from its present negative value, HP should look healthier than it did before Christmas. But the big question is: What factors are going to justify a price to earnings ratio of 39 when revenue growth is only 7%?

Yes, the company may get some benefits from layoffs. Yes, the company could cut its costs of sales more. But neither of those actions creates the type of growth that can sustain the multiple this stock is at. And with Forrester projecting IT spending to increase only 7% this year in the US, HP needs its growth to exceed the market to deliver big returns to investors.

With HP's rain-making printing division facing increased competition and pricing pressure, Wall Street's honeymoon with HP stock may soon come to an end.

I do not own HP stock, but I do own Apple shares. Neither Blackfriars nor I do work for either company.

Related: Can HP Keep Up The Magic?

HPQ 1-yr chart:



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