The stock price of Hewlett-Packard Company (NYSE:HPQ) plunged by more than 6 percent to $21.87 per share around 1:05 PM in New York on Tuesday, after Goldman Sachs Group, Inc. (NYSE:GS) analyst, Bill Shope downgraded its rating for the company.
Shope recommended a sell rating for the shares of Hewlett-Packard Company (NYSE:HPQ) with a $16 per share price target. His previous rating for the stock was neutral. He lowered his rating for the company as Hewlett-Packard Company (NYSE:HPQ) continues to suffer a decline in computer sales.
According to Shop, the problems of the PC manufacturer were caused by previous restructuring efforts of its management. He emphasized that another round of restructuring initiative will unlikely solve the underlying challenges confronting the company. He also noted that the problems of the core hardware segments remain severe and its Enterprise Services could be a persistent drag on the Hewlett-Packard Company (NYSE:HPQ).
Shop also cited that the recent improvement of the cash flow of the company is encouraging, however he advice investors to remain cautious. He emphasized that Hewlett-Packard Company (NYSE:HPQ)'s cash flow are volatile year over year and quarter over quarter.
In a note to investors, Shop wrote, “Sentiment has moved ahead of reality. While we recognize H-P’s valuation remains compressed, we believe that the stock has room to fall under earnings powers comes under incremental pressure.”
In addition, he believed that the existing restructuring strategy of the company will impacted negatively by weak performance of HP’s business segments. Shop said, “The current restructuring actions will be largely countered by incremental weakness in PCs, enterprise hardware, services and printing in fiscal 2013.”
Prior to the downgrade, the stock value of Hewlett-Packard Company (NYSE:HPQ) increased by 64 percent due to investors’ confidence that Meg Whitman has the ability to develop strategies that could turn the company around. Last February, Whitman who is now the fourth CEO of the PC maker in three years, demonstrated positive signs after providing an earnings estimate the exceeds the expectations of analysts for the second quarter. Back then, Whitman stated that cost cutting and the improving demand for enterprise services offset the declining demand for PC s.
Last month, International Data Corporation (IDC) released a study indicating that the global PC shipments will decline by 1.3 percent from 350.4 million to 345.8 million units this year. In 2012, the global PC shipments dropped by 3.7 percent.