Hewlett-Packard (HPQ) Rumor Mill Back in Business

August 23, 2013 3:12 PM EDT Send to a Friend
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On Thursday shares of Hewlett-Packard (NYSE: HPQ) dropped 15% in the wake of Q2 results and guidance. The dramatic fall is fueling speculation that activists will once again push for a split of the company. The rumors are being stoked given the realization that Ralational Investors' Ralph Whitworth's standstill agreement with the company ends in November.

Ralational owns 34.5 million shares in HP and Whitworth is a member of Hewlett-Packard board of directors. He has a history of activism and helped push for a breakup of L-3 Communications (NYSE: LLL) in 2011.

Commenting on the developments, Wells Fargo analyst Maynard Um said, "We found it interesting that many investors were unaware of the stand-still agreement Ralph Whitworth has through November and given the sell-off and valuation in the stock, some wonder whether this will spur some activism either from new activists or when the stand-still agreement ends."

2014 revenue is among the issues facing Hewlett-Packard and CEO Meg Whitman. During the company's post-earnings conference call on Wednesday evening, she said company level revenue growth was unlikely 2014 in light of challenges in enterprise and due to the fact that PCs haven't stabilized. In Um's view, Whitman's comments likely blindsided bulls.

"More broadly speaking, we think HP fell victim to the mega cap disease this quarter and not unlike other large cap tech disappointed. . . . [Bulls] are, however, unhappy with the way the company messaged the quarter, the outlook, and, in particular, the rationale for discussing only one portion of 2014 guidance," he said.

Whitman plans to discuss expectations for 2014 in more detail at HP's analyst day in October. Until then, Um doesn't expect a sharp recovery in the stock. In the meantime, given the circumstances, and M&A drama in peer Dell (Nasdaq: DELL), the HP rumor mill could see an uptick in business.

Wells Fargo has an Outperform rating on Hewlett-Packard.

For an analyst ratings summary and ratings history on Hewlett-Packard (NYSE: HPQ) click here. For more ratings news on Hewlett-Packard click here.

Shares of Hewlett-Packard closed at $22.22 yesterday.


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