Hewlett-Packard Company (NYSE:HPQ) somewhat surprised the Street when it posted better than expected earnings in its second-quarter results, declared after market hours, yesterday. Some analysts on the Street believe that Hewlett-Packard Company (NYSE:HPQ) is undervalued, one among them is Toni Sacconaghi, Analyst at Sanford C. Bernstein, who increased his price target on Hewlett-Packard Company (NYSE:HPQ) to $40 while maintaining an ‘Outperform’ rating. Toni Sacconaghi discussed the company’s results and future outlook on CNBC, recently.
“I think it’s really a reflection of the whole portfolio at Hewlett-Packard Company (NYSE:HPQ). We have now had three quarters where revenues have been relatively flat and in the context of an enterprise market that isn’t growing much. IBM will be down, Cisco’s revenues would be relatively flat. That’s really not bad and so our perspective is Hewlett-Packard Company (NYSE:HPQ) is still trading at a discount to almost all enterprise companies. It’s the sixth least expensive stock in entire S&P 500 on price to forward earnings. So, we think there is more revaluation that can occur in the name,” Sacconaghi said.
Sacconaghi feels Meg Whitman and the senior management of Hewlett-Packard Company (NYSE:HPQ) have been successful in stabilizing the company, especially on the fronts of cash flow and matching expenses to revenue growth. Sacconaghi mentioned that though Hewlett-Packard Company (NYSE:HPQ) has laid off 13-14% of its workforce, the company’s revenue from the peak have also come down by the same amount.
“So, they have done a nice job in stabilizing the company. I think that if you believe that this company doesn’t really grow, their topline is flat, but they can continue to drive margins a bit higher and continue to buy back shares and perhaps get 5 or 6% EPS growth and pay a 2% dividend, I certainly think that it’s worth at least 10 times earnings, which is to put the stock at around $40 […],” Sacconaghi added.