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Hewlett-Packard Company (HPQ): Is This Comeback for Real?

In reality, macroeconomic weakness has also affected the enterprise segments of all major corporations. Cisco Systems, Inc. (NASDAQ:CSCO) is probably the only company which has exceeded expectations and shown growth in its enterprise division. The company reported a 14% year-over-year increase in profits and a 5% rise in revenues, due to unexpected growth in next-generation network routing products.

However, the biggest entrpise player on the market, International Business Machines Corp. (NYSE:IBM), is facing problems. The company has just reported one of its worst quarters ever, resulting in its biggest single-day stock decline of the last eight years. It is trying to sell a part of its server division to the Chinese manufacturer Lenovo, which turned down the offer for its reportedly high price.

The poor performance of the world’s leading enterprise company shows that the much-coveted enterprise segment is not the solution to all of HP’s troubles — and that a small improvement its revenues doesn’t justify such a big rally.

Bottom-line

HP’s PC segment is still sinking faster than expected. Its printer segment barely matched expectations. And the company is still going through a major leadership crisis. The market might credit Hewlett-Packard Company (NYSE:HPQ)’s price rebound with the recovery in the enterprise segment, but established major enterprise players like International Business Machines Corp. (NYSE:IBM) are already facing problems in this space.

Therefore, the market should not expect this single segment to solve all of HP’s troubles, and it definitely doesn’t warrant such an improvement in valuations. Therefore, the current rally is primarily a market overreaction, fueled by HP’s earnings beat and higher equity investment due to a poor bond market. Investors should avoid HP for the time being, and invest only if the company is able to show significant top-line momentum.

The article Is This Comeback for Real? originally appeared on Fool.com and is written by Mohsin Saeed.

Mohsin Saeed has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. The Motley Fool owns shares of International Business Machines. Mohsin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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