When we “crowd-sourced” the idea among other investment professionals and individuals that like to do their own investing, HP(Hewlett Packard) was a fools gold kind of stock. One that had all the pieces in place but given it’s industry in commoditized printers/computers as well as its late start into the smart-phone market, it doesn’t have much upside. I beg to disagree.
What I see in HP, is a company that’s still beating Wall Street estimates even after it keeps acquisitions on the up and up. Better than that, the companies that they’ve been acquiring have yet to positively attribute anything to their bottom line (most notably Palm, all they are doing so far is sucking up R&D, administrative, and production dollars). And they’ve still not come out with an webOS based product in the year of 2010. Buying companies that currently increase expenses and not revenue, yet still beating estimates are a testament to their management’s efficiency, and their price’s undervalued potential.
On the upside...and I mean UPSIDE...HP announced that they will debuting tablets, cellular devices, and printers installed with webOS in 2010. Along with their regular numbers (which already place it as one of the largest tech companies in the world), these added features and capabilities to their product line will allow it to stand head and shoulders above others in their competitive industry.
Looking at the R&D numbers from their last three quarterly earnings reports, you can see that they are investing heavily in the development of new products. This increase most likely deals with the Palm acquisition last year. R&D will undoubtedly help them gear up for the new webOS releases and foray into the smartphone market.
All in all we see HP taking a small piece out of the pie that is the smartphone market. We see it’s continued dominance in the printer market. Also, we see it making quite a bit of headway in the tablet market once it releases one running webOS. As for earnings and the fundamentals, HP has a steadily rising EPS over the last four quarters, as well as a treasure chest-esque amount of cash on the balance sheet. Even if they fell into trouble with a flop in the smartphone arena, they still have the cash to effectively counter the effects on their future operations. At revenues of $33 billion, we don’t see that happening anytime soon. We have a price target of $70 on HP by October of 2011.
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