Why You Should Give Hewlett-Packard Company (HPQ) Another Chance!

Page 1 of 2

There are numerous companies in the world who have turned from rags to riches, and again to rags. Hewlett-Packard Company (NYSE:HPQ) is one of those names. It was once the market leader in the tech world, then lost its way through a flurry of bad multi-billion dollar acquisitions, and also lost the innovative culture that had made it what it was in its glory days. I believe in the coming two years we might see a handsome turnaround story. Let’s assess why.

Attractive valuation and dividend yield.

Hewlett-Packard Company (NYSE:HPQ) trades at less than 5 times expected 2013 non-GAAP earnings, and there is little doubt that its earnings are cyclically depressed. It has an attractive forward PE of 4.9.

Hewlett-Packard Company (NYSE:HPQ)I think the main reason people may consider HP as an investment is not only because of its relatively low financial risk, but also its relatively high dividend yield. As of recent quarter, HP paid a quarterly dividend of $0.13, which is nearly a 3.09% annual dividend yield. In comparison, Xerox Corporation (NYSE:XRX) is offering a dividend of $0.04 per share, which reflects a yearly yield of 2.19%.

But for Xerox,  the risk attributed to the dividend payment is higher than that of HP. The free cash flow of these companies (calculated by the sum of operating activities and investing activities cash flow) is negative or nearly zero. In the first nine months of 2012 the free cash flow of Xerox reached $206 million, which is barely enough to cover the company’s $195 million dividend payment.

Decent Q4 and healthy cash flow.

First quarter non-GAAP diluted earnings per share of $0.82 were down 11% from last year, but were above the previous outlook of $0.68-$0.71. First quarter GAAP diluted earnings per share were $0.63, down 14% from the prior year, but above the previous outlook for $0.34 to $0.37 per share. Net revenue in the quarter was down 6% YoY to $28.4 billion, and down 4% when adjusted for the effects of currency.

Hewlett-Packard produced $2.6 billion of cash flow from operations, which was up 115% YoY. $2.1 billion of free cash flow was generated in the quarter, highlighting the underlying profitability of Hwelett-Packard’s business mix.

Hewlett-Packard continued returning capital to shareholders, having spent $511 million in the quarter on dividends and buybacks. Hewlett-Packard is intelligently guiding conservatively into 2013. The company estimates second quarter non-GAAP diluted EPS to be in the range of $0.80 to $0.82, and GAAP diluted EPS to be in the range of $0.38 to $0.40. In the first quarter, Hewlett-Packard Company (NYSE:HPQ) paid a $0.132 per share dividend that resulted in cash usage of $258 million, and the company also bought back 19.2 million shares for roughly $253 million.

That equates to an average price of $13.17, and is an exceptional utilization of cash. Shares outstanding were down to 1.956 billion from 1.964 billion on Oct. 31, and 1.998 billion at the same time last year. Hewlett-Packard Company (NYSE:HPQ) continues to improve its net debt situation by reducing it by more than $1 billion in the quarter to $4.7 billion, and this marks the fourth consecutive quarter where the company has been able to reduce net debt.

Positive future ahead

Microsoft (NASDAQ:MSFT)’s release of Windows 8 has given a huge boost to the PC industry because it has integrated a UI (Metro) designed for touch-screen use into Windows 8, the result of which is we are seeing mass upgrades to touch-enabled laptops and desktop, thus increasing PC upgrade profits. The PC business is extremely cash generative, and is absolutely essential for assisting sales of the potentially lucrative service offerings.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

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 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!