Entering text into the input field will update the search result below

Time to Buy Hewlett Packard? A Resounding YES

Aug. 19, 2011 11:37 AM ETHP Inc. (HPQ) Stock30 Comments
Sebastien Buttet profile picture
Sebastien Buttet
33 Followers

Given the current market woes with the S&P dropping by more than 4% and the VIX closing at 42, one would be foolish to recommend equities at this juncture. After all, none of the problems that precipitated the sell-off are solved, including the sovereign debt crisis in Europe and the future of the Euro currency as well as the chance of a looming global recession.

In addition, investors sent Hewlett Packard (NYSE:HPQ) 10% lower after the tech bellwether reported earnings and detailed its re-organization plans. Trading at around $23 at the open, we ask a simple question: is it time to buy shares of HP? Our answer, a resounding YES because of the following three reasons:

1. Valuation: HP's bottom line for the third quarter of 2011 of $0.93 (GAAP) or $1.10 (non-GAAP) was in line with analysts' expectations.

Full-year FY11 revenue will be approximately $127.2 billion to $127.6 billion, down from its previous estimate of $129 billion to $130 billion.

FY11 GAAP diluted EPS is expected to be in the range of $3.59 to $3.70, down from its previous estimate of at least $4.27, and FY11 non-GAAP diluted EPS is expected to be in the range of $4.82 to $4.86, down from its previous estimate of at least $5.00.

Using the mid-point non-GAAP EPS estimates, HP currently trades at a P/E ratio of 5 and has a dividend yield of 1.9%.

Balance sheet is decent shape with debt to equity ratio of 0.5 and current ratio greater than 1 so HP should have no problem going thru the reorganization phase.

Finally, to put things in perspective, HP made a low in the mid-twenties in March 2009 when the stock placed an intergenerational bottom. Back then, non-GAAP EPS were 33% lower at $3.62.

So based on valuation, HP is extremely cheap.

This article was written by

Sebastien Buttet profile picture
33 Followers

Recommended For You

About HPQ Stock

SymbolLast Price% Chg
Market Cap
PE
Yield (TTM)
Rev Growth (YoY)
Prev. Close
Compare to Peers

More on HPQ

Related Stocks

SymbolLast Price% Chg
HPQ
--