It's Time to Part-Out Hewlett-Packard (HPQ)

December 7, 2012 2:26 PM EST
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Price: $14.73 -0.87%

Rating Summary:
    14 Buy, 22 Hold, 5 Sell

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    Up: 30 | Down: 30 | New: 23
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In the view of Wall Street, Hewlett-Packard (NYSE: HPQ) is a joke. In some ways, it isn't HP's fault. Like many other technology companies, it had no way of knowing tablet sales would boom, crippling its PC business. Hewlett-Packard laughed at the idea. Lately, laughter has turned to tears for many investors.

However, Hewlett-Packard problems are much bigger and broader than a secular decline in PCs. In just two years, the stock has declined a staggering 67 percent. Meanwhile, shares of competitor Dell (Nasdaq: Dell) are lower by only 23 percent. Clearly there are bigger issues than just tablets.

HP's recent acquisition of Autonomy Corp. is a perfect example. In its latest quarterly report, Hewlett-Packard Co. included a massive $8.8 billion write down, claiming it was a victim of accounting fraud. While that may be, on Wall Street, hard-luck stories play as well as horse jockeys in a slam dunk contest. Clearly, fraud or not, much of the blame can be traced back to HPQ management and its board of directors – which itself is a comedy, but that is another story.

Today's message isn't about finding ways to save HPQ; it's about splitting it up.

The chorus of voices calling for a break up has become deafening, and HP and CEO Meg Whitman would be wise to listen. A break would, in the view of ISI Group's Brian Marshall, imply as sum of parts valuation of $20, 45 percent higher than yesterday's close.

In its current state, most view a 45 percent gain as virtually impossible in the foreseeable future, and while there is no guarantee a sale would fetch a premium, it is hard to see how struggling to keep the ship afloat benefits investors.

For now, HP says it has no plans to split the business. This isn't surprising considering the company's recent string of failures and ill advised decisions. For the sake of anyone unlucky enough to own stock, many well respected investors and analysts think they should seriously reconsider. After all, just because HP is hard-luck doesn't mean investors have to join the pity party.

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