Shares of Hewlett-Packard (HPQ) are down $1.13, or 4%, at $25.73, after the company last night beat fiscal Q4 revenue and profit expectations, but performed a “reset,” if you will, forecasting this quarter and the year’s profit below analysts’ expectations, and saying that 2012 will be a year of transition for the company as CEO Meg Whitman has her crack at leading the company.
“We didn’t live up to our expectations in 2011,” said Whitman on a conference call following the results. “We need to get back to doing what we do really well, being the reliable, trusted partner with whom our customers want to work, and delivering the reliable, consistent results that all of you can count on.”
Analysts today largely seem inclined to believe the company has made the first step in getting back there, but there’s some difference over just how much patience they have with the process of recovery:
Shaw Wu, Sterne Agee: Reiterates a Buy rating and a $34 price target. The “reset” of earnings expectations to $4 this year was “better than feared,” he writes, alghtouh the “back-end loaded nature towards the second half may cause some concern.” Whitman is “aiming to under-promise and over-deliver to rebuild investor confidence,” he adds. The lack of a revenue forecast from the company is unfortunate, he thinks, as it would have been to provide such detail “for better transparency.” Overall, though, HP is “an underappreciated turnaround story where its trading multiple could expand as investors get more comfortable with the company�s improved focus and execution.” Wu cut his estimate for this year to $4.15 per share in profit from a prior $4.35.
Brian Marshall, ISI Group: Reiterates a Buy rating and raises his price target to $34 from $32, writing that Whitman is “re-focusing on fundamentals and profitable growth,” which is what is needed, he thinks, given “damage inflicted to the HP brand and HPQ shareholders/employees over the past year.” In his view, the company is going back to the garage of Bill and Dave, at 367 Addison Avenue in Palo Alto. “We believe HP has more �pieces to the puzzle� (e.g., enterprise storage, networking, security, servers, software and IT services) vs. its peers and is in a better position to sell solutions to its customers (vs. point products). Now the challenge becomes integrating the ~$35 billion of companies HPQ acquired over the past several years (see page 5 for a list) and building a better �picture with the pieces.�
Richard Gardner, Citigroup: Reiterates a Buy rating, while raising his price target to $35 from $28. He cut his fiscal year EPS estimate to $4 from $4.78. “Multiple headwinds notwithstanding, our modeling suggests that management�s guidance leaves ample room to ramp investments, clear channel inventories and still deliver consistent, meaningful upside for the next several quarters. Moreover, at just 7X FTM non-GAAP EPS guidance, valuation remains compelling precisely because HPQ shares are so under-owned. This strikes us as a recipe for near-term outperformance.”
Katy Huberty, Morgan Stanley: Reiterates an Equal Weight rating, and cuts her EPS estimate for this fiscal year to $4 from a prior $4.22. “Setting conservative guidance for FY12 is step one in a three step process of regaining credibility with investors. Next steps include proving quarterly execution and a smart capital allocation strategy, which likely require at least another Q to play out.”
Richard Kugele, Needham & Co.: Reiterates an Underperform rating and cuts his year EPS estimate to $4.04 from $4.74. The task facing the company is “daunting,” Kugele writes. “How do you turn around one of the largest tech hardware companies in the world with a weakened balance sheet and a maligned corporate image all amidst a challenging macro-economic environment? Although the company continues to try its best to articulate its plan to be relevant and regain leadership, as Henry Ford said, ‘You can�t build a reputation on what you are going to do.’ As we continue to see 12-24 months+ of restructuring, weak earnings, and soul searching, we reiterate our Under Perform rating on HP.”
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