Earnings Analysis: Hewlett-Packard Co. (NYSE:HPQ)

Page 1 of 2

Hewlett-Packard Company (NYSE:HPQ) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

Hewlett-Packard Company (NYSE:HPQ)

Hewlett-Packard Co.’s analysis versus peers uses the following peer-set: Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), International Business Machines Corp. (NYSE:IBM), Cisco Systems, Inc. (NASDAQ:CSCO), EMC Corporation (NYSE:EMC) and Dell Inc. (NASDAQ:DELL). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Annual (USD million) 2012-10-31 2011-10-31 2010-10-31 2009-10-31 2008-10-31
Revenues 120,357.0 127,854.0 125,682.0 114,552.0 118,364.0
Revenue Growth % (5.9) 1.7 9.7 (3.2) 13.5
Net Income (12,650.0) 7,074.0 8,761.0 7,660.0 8,329.0
Net Income Growth % (278.8) (19.3) 14.4 (8.0) 14.7
Net Margin % (10.5) 5.5 7.0 6.7 7.0
ROE % (41.4) 17.9 21.6 19.3 21.5
ROA % (10.6) 5.6 7.3 6.7 8.2

Valuation Drivers

Hewlett-Packard Co.’s current Price/Book of 1.1 is about median in its peer group. HPQ-US’s PE multiple is negative now so EBITDA ratios provide better peer comparisons. HPQ-US’s share price implies less than peer median growth (Price to Ebitda multiple of 1.8 compared to peer median of 7.8). The market seems to expect HPQ-US’s around median rates of return (EBITDA return on equity of 46.0% compared to the peer median of 44.9%) to decline.

The company’s profit margins are below peer median (currently -10.5% vs. peer median of 15.5%) while its asset efficiency is about median (asset turns of 1.0x compared to peer median of 0.9x). HPQ-US’s net margin is its lowest relative to the last five years and compares to a high of 7.0% in 2008.

Economic Moat

Changes in the company’s annual top line and earnings (-5.9% and -278.8% respectively) generally lag its peers. This implies a lack of strategic focus and/or inability to execute. We view such companies as laggards relative to peers.

HPQ-US’s return on assets is less than its peer median currently (-10.6% vs. peer median 9.3%). It has also had less than peer median returns on assets over the past five years (3.4% vs. peer median 10.2%). This performance suggests that the company has persistent operating challenges relative to peers.

The company’s comparatively low gross margin of 25.8% versus peer median of 51.5% suggests that it has a non-differentiated strategy or is in a pricing constrained position. In addition, HPQ-US’s bottom-line operating performance is below peer median (pre-tax margins of -9.9% compared to peer median 20.4%) suggesting relatively high operating costs.

Growth & Investment Strategy

HPQ-US’s revenues have grown more slowly than the peer median over the last few years (1.7% vs. 8.4% respectively for the past three years) and the stock price’s relatively low Price/EBITDA ratio of 1.8 implies relatively low future growth as well (Note: We use Price/EBITDA instead of PE due to negative earnings). Overall, we classify the company’s growth expectations as substandard relative to its peers.

HPQ-US’s annualized rate of change in capital of -3.6% over the past three years is less than its peer median of 11.4%. This below median investment level has also generated a less than peer median return on capital of 1.4% averaged over the same three years. This outcome suggests that the company has invested capital relatively poorly and now may be in maintenance mode.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!