Hewlett-Packard Company (HPQ) Set To Split

Updated on

Hewlett-Packard Company (NYSE:HPQ) splits

By Carly Forster

Hewlett-Packard Company (NYSE:HPQ) is a Palo Alto, California based multinational information technology corporation that provides a broad spectrum of products and services such as printing, personal systems, software, hardware, and IT infrastructures. On Monday October 6th HP revealed plans to split into two separate publicly traded fortune 500 companies by the end of 2015.

Hewlett-Packard’s end goal is to have one company containing HP’s market-leading enterprise technology infrastructure, software and services businesses and the other company to consist of HP’s market-leading personal systems and printing businesses. Meg Whitman, Chairman, President and Chief Executive Officer of HP said in a statement, “The decision to separate into two market-leading companies underscores our commitment to the turnaround plan. It will provide each new company with the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics, while generating long-term value for shareholders. In short, by transitioning now from one HP to two new companies, created out of our successful turnaround efforts, we will be in an even better position to compete in the market, support our customers and partners, and deliver maximum value to our shareholders.”

Gates Cap Management Reduces Risk After Rare Down Year

Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy Read More

Shares of Hewlett-Packard opened at $37.09 on Monday, October 6th. The technology company has a 1-year high of $38.25 and a 1-year low of $20.25. The stock’s daily moving average is $37.03 and has a 50-day moving average of $36.44. The market cap for Gilead Sciences is $68.81 billion and its P/E ratio is 13.86.

hewlett packard hpq

On October 5th before the official announcement, Morgan Stanley analyst Kathryn Huberty reiterated an Overweight rating on HP with a $40 price target. She noted, “While PC and Printers are run on a combined basis already, a change HP CEO Meg Whitman made in March 2012, we would expect incremental costs and/or reduced scale if the business was run without the current shared cost structure. Other potential influences on valuation could include increased leverage on the HP PC + Printer balance sheet that provides HP Enterprise with liquidity for M&A and/or potential tax rate fluctuations up/down based on the company’s ability to repatriate international cash. We would expect more clarity on these topics if the company announces a formal plan to split up the company.” Huberty currently has a 68% success rate recommending stocks, earning a +14.3% average return per recommendation. She has also rated Hewlett-Packard 10 times, earning a 63% success rate recommending the stock.

Separately on October 6th, UBS analyst Steven Milunovich reiterated a Neutral rating. He explained, “We argued two years ago that separating PCs/printers made sense for reasons of focus. Whitman claims that HP wasn’t ready until operations were stabilized and debt paid down. Most of the core debt will go with HP Inc., which will become more of a yield play, while Enterprise should be able to make acquisitions. The companies will cooperate in financing and component purchases; Whitman will be CEO of Enterprise and Chairman of Inc. Why not a new brand for Enterprise? Some observations: (1) we would think this is a good opportunity to rename the enterprise business—Hewlett-Packard Enterprise is weak; (2) HP said it still is in receipt of non-public info, which could be EMC though the likelihood of a deal near term seems reduced; (3) management changes its mind often given the reversal of better together and the additional restructuring; (4) disruption is at least a modest risk.” Milunovich currently has a 47% success rate recommending stocks, earning a +2.1% average return per recommendation. He has also rated Hewlett-Packard 12 times, earning a 0% success rate recommending the stock.

On average, the top analyst consensus for Hewlett-Packard is Moderate Buy.

To see more recommendations for HPQ, visit TipRanks today!

Carly Forster writes about stock market news. She can be reached at [email protected]

Subscribe to ValueWalk!

Get updates on the latest posts and more from ValueWalk straight to your inbox.