The PC company has been the talk of a potential leveraged buyout of late. Founder Michael Dell Inc. (NASDAQ:DELL) had made plans to acquire the company for $24.4 billion, or $13.65 per share, in cash. This privatization would allow Dell to transition away from the PC business and away from public scrutiny. Meanwhile, Dell is facing increased competition in its server and storage markets from the likes of International Business Machines Corp. (NYSE:IBM).
Microsoft Corporation (NASDAQ:MSFT) designs and sells hardware, as well as PC-related software, operating in five segments: Windows and Windows Live, server and tools, online services division, Microsoft business division, and the entertainment and devices division. Although Microsoft operates across five major segments, that doesn’t necessarily translate into diversity.
More than 50% of its sales come from software for PCs and although the PC market may continue to decline over the interim, Microsoft Corporation (NASDAQ:MSFT) is at least posting solid results for the time being. The company recently reported EPS for the first three months of 2013 that came in at $0.72, compared to expectations of $0.68. The company’s major tell-tale over the interim will be adoption rates of its Windows 8 operating system.
But again, the slowing PC market is slowing down, indicating that Windows 8 adoption could take longer than expected. First-quarter shipments of PCs fell 14% worldwide from the same time last year, according to International Data Corp. That’s the deepest quarterly drop since the firm started tracking the industry in 1994. However, with a strong balance sheet, one that includes nearly $75 billion in cash, Microsoft Corporation (NASDAQ:MSFT) could also be a long-term bet on innovation if it shows signs of transitioning away from PCs.
Billionaire Donald Yacktman is one of the top hedge fund owners in both Dell and Microsoft. Compared to Hewlett-Packard Company (NYSE:HPQ)’s 47 hedge fund owners, Microsoft had 95 owners going into 2013. Yacktman has the largest position in Microsoft, a $797 million position making up 4.8% of his fund’s 13F portfolio. The second largest stake is held by First Eagle Investment with a $729 million position.
By the numbers
HP also offers investors a solid dividend while they wait for the turnaround.
| HP | Dell | Apple | Microsoft | |
| Dividend yield | 2.4% | 2.3% | 2.4% | 3% |
What’s more is that the computer company is cheap on a number of levels when compared to peers.
| HP | Dell | Apple | Microsoft | |
| Forward P/E | 6.2 | 8.5 | 8.8 | 9.7 |
| Price to sales | 0.4 | 0.4 | 2.5 | 3.5 |
| EV/EBITDA | 3.9 | 4.9 | 6 | 6.5 |
Analysts are also encouraged by HP’s long-term growth prospects, with its expected annualized EPS expected to grow well above that of Microsoft.
| HP | Dell | Apple | Microsoft | |
| 5-year expected EPS growth | 19% | n/a | 62% | 7% |
Don’t be fooled
While most of the PC-industry attention has been on Dell, this could be a great opportunity to snag some HP shares while its still very cheap. Assuming HP should trade more inline with fellow turnaround PC company Dell at a 4.9 EV/EBITDA, the stock would have upside of 40%.
The article Why This Company Is a Good Long-Term Investment in Innovation originally appeared on Fool.com.
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