HP's Whitman Bludgeons Her Way Through Doubters And Into 2014

| About: HP Inc. (HPQ)
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Meg Whitman was named the CEO of sinking ship Hewlett-Packard (NYSE:HPQ) in September 2011. Since her taking over, she's generally been seen as ineffective and underperforming, with HP being the one stock in the Dow Components that a lot of analysts hadn't considered buying or holding through the broad market's bullish run over the last couple of years. An inordinate amount of analysts have seemed to have trouble putting confidence behind the job Meg Whitman has been doing.

You can say what you want about Whitman, but you can't argue with results. The stock has performed well, the balance sheet has strengthened, and HPQ continues forward with a clear business plan and a large cash position to do its business with. I firmly believe Whitman is going to be the one that eventually rights HPQ's ship.

The last year has generally been a roller coaster ride for HPQ, but ultimately, caught in the middle of a bull market, the stock has provided impressive returns for those willing to risk their money in HPQ. HPQ has yielded near 100% returns since the beginning of 2013 alone and is turning into a good comeback story.

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When Whitman started, one of the things she shocked the street with was her emphasis that she wanted to put back onto PC sales in a market where PC sales are being negatively affected by tablets and smartphones. Catalyzing the stock's run today was HPQ reporting Q4 earnings that beat analyst expectations. VentureBeat.com reported:

Hewlett-Packard reported its fourth fiscal quarter earnings that beat expectations on Wall Street.

The earnings are being closely watched as a bellwether for the tech economy, as HP is a big player in both the enterprise and consumer technologies. But it's also under scrutiny as HP CEO Meg Whitman has promised a financial turnaround that seems to be taking longer and longer. Right now, HP is a test of investor patience.

HP reported revenue of $29.1 billion for the three months that ended Oct. 31, down 3 percent (and just 1 percent after currency adjustments) from $30 billion a year ago. Non-GAAP (generally accepted accounting practices) earnings per share were $1.01, down 13 percent from a year ago.

In after-hours trading, HP stock was up 7 percent to $27 a share. Before the report, HP shares closed down 23 cents at $25.09 a share.

While it isn't as cool as Apple and doesn't make games like Microsoft, HP is a critical piece of the electronics industry, as it straddles both the consumer and enterprise markets across a number of product lines. It has made scores of acquisitions in the past 15 years.

For the fiscal year, HP reported non-GAAP earnings per share of $3.56, compared with $4.05 a year ago. Revenues for the year were $112.3 billion, down from $120.4 billion a year ago.

Before the earnings report, analysts estimated HP would report non-GAAP net income of $1 share on revenues of $27.86 billion. Analysts had previously expected full-year earnings of $3.64 a share on revenues of $107.48 billion. So the year was light on earnings but stronger on revenue.

Additionally, the company has been continuing to bolster its balance sheet, reporting $12 billion in cash (up from last year) and $16.6 in debt (down from last year). The balance sheet took a nice step in the right direction, all while maintaining operations.

So, is Meg Whitman going to be the one that can lead the company back to the promised land? I think so, and it was also reported this morning that she seems to think so:

"We're going to get sharper," Whitman said. "We're going to get crisper. … We've got a long way to go in this turnaround."

Whitman said, to end HPQ's call:

"Through improved execution, strong cost management, and with the support of our customers and partners, HP ended fiscal 2013 on a high note," Whitman said. "Our Q4 results demonstrate that HP's turnaround remains on track heading into fiscal 2014. While we still have much more work to do, our business units and their core assets are delivering on HP's strategy to help customers thrive by providing solutions for the new style of IT."

Whitman's emphasis on the fundamentals certainly makes her a favorable choice for me to continue with HP down this same road. Getting the company's feet firmly on the ground by bolstering its cash position and eliminating debt is a sign of staying power.

There's some risk here, as well. HP is in a vulnerable spot, and they're in the midst of a global PC pullback due to tablets and smartphones. In addition, a class action suit was just brought against the company for its questionable acquisition of Autonomy corporation. Though not likely to produce a material outcome, it's going to cost the company a fair amount in legal fees.

The valuation, I'll argue, remains attractive.

HP, even after its bump from earnings, still trades at a modest market cap under $50 billion. Though the company is expecting stagnant revenues through 2014, that's not going to prevent them from adjusting operating efficiencies and internal spending that still have a chance to allow them to bolster its bottom line.

At a current P/E of 10.37, HPQ is prime for the purchasing for Whitman's continued run to - and through - the finish line.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HPQ over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.