Hewlett-Packard Company (HPQ): Even If Icahn Doesn’t Buy, Should You?

Hewlett-Packard Company (NYSE:HPQ) was up as much as 5% earlier this week on rumors that billionaire Carl Icahn might be buying up shares. Icahn is one of the best corporate raiders around, but we are not ready to jump head first into HP on the idea that he might be ramping up for a campaign (check out Carl Icahn’s newest picks).

In order to trigger a 13D filing with the SEC, Icahn would have purchase up to 5% of HP’s common stock outstanding. This would require an approximate $1.4 billion investment on Icahn’s part, which would put HP as one of Icahn’s top 13F investments. With the apparent exit from Oshkosh, Icahn will be freeing up time and several hundred million dollars that could be used toward another investment, but we do not see it at HP.

HP posted 3Q results that saw EPS beating estimates despite lower order renewals and large write-downs. The restructuring initiatives will likely result in continued weakness and write-downs, as the company focuses on core operations to find its next major growth avenue. The past quarter showed some shifting of strategic priorities to restructuring efforts, which has in part put the stock down over 20% in the past three months.

The printer business is facing intense competition, with top competitors Lexmark and Canon becoming more aggressive, and refill options for ink now at very low costs. Restructuring initiatives should save HP upwards of $3.5 billion over the next half-decade, driven by the layoff of 25,000+ employees through 2014. These savings are expected to be reinvested in new growth opportunities, particularly cloud computing. The company’s already diverse product portfolio – PCs, printers and software – should also help to alleviate some pressure.

HP also has a market leading position in the computer equipment business with over 25% of industry-wide revenues, ahead of top rival Dell. Billionaire Jim Simons – founder of Renaissance Technologies – is one of Hewlett’s big backers, upping his stake over 3,500% last quarter (check out Jim Simons’ other top picks).

Dell Inc. (NASDAQ:DELL), meanwhile, is one of HP’s top competitors and should see revenues down around 10% in FY2013. This decline will be driven by weakness in its PC segment, on both the consumer and business sides. The overall economy and competitive low-cost pressures from Asian manufactures are expected to also be major pressures. One bright spot for Dell, though, is the expected rise in server sales. Billionaire Ray Dalio is curiously a big fan of Dell, as he increased his stake in the company by 50% last quarter (see all of Ray Dalio’s picks here).