Hewlett-Packard Company (HPQ)’s Rally Was the Return of Market Sanity

Page 1 of 2

Hewlett-Packard Company (NYSE:HPQ)’s earnings and stock price have been fluctuating. After the company’s EPS dropped to a negative $3.49 for Q4 fiscal year (FY) 2012 and a negative $6.41 for the full fiscal year, Hewlett-Packard Company (NYSE:HPQ) posted a positive EPS of $0.63 for Q1 FY 2013. The majority of the damage to Hewlett-Packard Company (NYSE:HPQ)’s earnings was the result of one-time charges from restructuring and the impairment of intangible assets. These charges skewed earnings to the negative and spurred talks of the impending demise of the tech giant.

Hewlett-Packard Company (NYSE:HPQ)Back in November, when Hewlett-Packard Company (NYSE:HPQ)’s stock price sank to around $12, I wrote a post titled This PC Giant Is a Steal. The post pointed out that Hewlett-Packard Company (NYSE:HPQ) was still a cash cow and (after adding back restructuring and impairment charges) the company was trading at a bargain PE of about four. The stock market sometimes gives out insane valuations, and Hewlett-Packard Company (NYSE:HPQ) at $12 was one of them. Now that Hewlett-Packard Company (NYSE:HPQ)’s stock price has significantly appreciated it is important to revisit this topic.

Estimating HP’s value

In the trailing twelve months (TTM), HP posted a negative EPS of $6.55. Adding back restructuring and impairment charges and accounting for taxes, Hewlett-Packard Company (NYSE:HPQ) earned approximately $3.10 per share in the TTM. Thus, using a modest PE ratio of 10, HP is worth approximately $31 per share.

However, it is also important to take into account HP’s balance sheet. A company’s balance sheet is important because it contains earnings retained by the company. Currently, Hewlett-Packard Company (NYSE:HPQ) has a total debt of about $28.2 billion, which is a lot considering HP’s total stockholders’ equity is only $23.3 billion. Still, since Meg Whitman took over, HP has significantly improved its debt situation. Whitman became CEO of HP in September 2011, which was during HP’s Q4 FY 2011. Check out the following table.

Q1-13 Q4-12 Q3-12 Q2-12 Q1-12 Q4-11
Total Debt (millions $) 28,227 28,436 29,744 30,077 30,900 30,634

Since taking over in Q4 FY 2011 from Apotheker, Whitman has reduced the company’s total debt by about $2.4 billion. In the company’s earnings release, Whitman stated, “…in the quarter, we improved our operating company net debt position for the fourth successive quarter by more than $1 billion to $4.7 billion. We’ll continue to take this approach and focus on rebuilding our balance sheet.” One of the things Whitman did well at eBay Inc (NASDAQ:EBAY) was keeping the company’s balance sheet clean, and she is providing that focus in HP.

Regardless, Hewlett-Packard Company (NYSE:HPQ) still has a negative tangible book value per share of $6.11. Tangible book value is the same as book value, except it ignores intangible assets like goodwill. In the case of HP, this is a better metric to use because the company has overpaid for acquisitions and has written down goodwill multiple times (e.g. Autonomy, EDS, etc). Taking into account the negative tangible book value, HP is worth about $25 per share.

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 World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

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

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!