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In the last quarter Hewlett-Packard Co. (NYSE:HPQ) earned $1 per share, excluding one-time costs such as acquisitions, beating estimates of 98 cents per share. The company reduced its future guidance slightly from $4.07 to $4.05. On Tuesday, many investors of Hewlett-Packard were overly concerned due to Dell Inc.'s (NASDAQ:DELL) results and future guidance. As a result, Hewlett-Packard's share price was down by more than 3% during regular trading hours. In the after-hours, the share price seemed to be recovering, with investors seemingly less worried.

Similar to Dell, Hewlett-Packard is also going through some changes in order to make its products more competitive in a market where PC prices are pressured downwards due to the competition from Asian PC makers like Lenovo and tablets like Apple's (NASDAQ:AAPL) iPad. As margins are very low in the hardware business, Hewlett-Packard is attempting to increase its exposure to areas with better margins, such as software and consulting.

Of course, the company has to compete with IBM (NYSE:IBM) who went through a very similar change successfully a couple decades ago. In order to move into more profitable businesses, Hewlett-Packard has to increase research & development spending in addition to acquiring companies that already provide some of those products and services.

The company's CFO Cathie Lesjak stressed that the current economic climate was a challenging one and many customers were taking a longer time than usual to decide on spending. It looks like this is a new trend, as companies like Oracle (NYSE:ORCL) and IBM have been warning of the same issue since the beginning of the year. As more hardware producers move to the software side, the competition in the software side might get progressively tougher.

If Hewlett-Packard is able to meet its guidance of $4.05 per share, this will give the company a forward P/E ratio below 5, as the company's share price is below $20 at the moment. Hewlett-Packard is a mature company and it might not be able to post strong growth for at least a few years; however, a P/E ratio of 5 is still too low for the company.

Currently, there is so much uncertainty regarding the company's restructuring that it is hard to assign the company a fair P/E ratio. Many investors don't know what to do with Hewlett-Packard. The company was trading for nearly $50 as recently as last year and all the company did was to announce that it would stop producing computers and later on take that back before the stock price plunged more than 50%. Sooner or later, things will calm down and investors of the company will realize the true value of this company.

The company's market cap is just short of $38 billion, whereas its assets total $118 billion, including nearly $10 billion in cash and equivalents. If the company is able to stabilize its revenues, this may ease the concerns of many investors of the company.

In addition, many concerns came to surface regarding the company's write-down of its enterprise-service business and other additional charges, such as early retirement packages for some Hewlett-Packard employees. When a company takes a large one-time charge, it will always worry investors because it might be a sign that more "one-time" charges are on the way. Hewlett-Packard's management needs to convince the company's investors that there won't be many of these one-time charges or write downs.

My assessment of Hewlett-Packard is very similar to my assessment of Dell. I don't see either company growing much in the next few quarters. That said, both companies are undervalued by a large margin due to worries relating to their restructuring efforts. If Hewlett-Packard is able to stabilize its revenue and end the write-downs and charges it faces, investors will start valuing this company again. In the long term (three to 10 years), I am bullish on Hewlett-Packard mostly because it is deeply undervalued at the moment.

Source: Things Might Not Be That Bad For Hewlett-Packard