Raymond James Maintains Market Perform on Hewlett-Packard (HPQ) Ahead of F2Q15 Results

Raymond James maintains a Market Perform rating on Hewlett-Packard (NYSE: HPQ) ahead of the F2Q15 results. Analyst Brian Alexander believes that their shouldn't be any major guidance revisions attributable to currency due to appreciation in the euro and some conservatism in HP’s original guidance.

Alexander commented on HPQ, saying, "We maintain our Market Perform rating on HPQ ahead of F2Q15 (April) results, as valuation remains intriguing, but execution risk of the separation and lingering uncertainty about the possibility of long-term targets being lowered at the September analyst meeting keep us on the sidelines. While our sum-of-the-parts analysis suggests a low $40’s share price is possible, we believe that absent a transformative acquisition in HP Enterprise (HPE), investors are unlikely to ascribe a healthy valuation to this business. We still contend that an acquisition of EMC would be wise and fit into the strategic and opportunistic needs of HPE; we estimate >50% EPS accretion to HPE and the assumed post-split capital structure would keep net debt/EBITDA under 3x. HP’s valuation is attractive on a FCF basis, where the EV/FCF multiple on normalized FCF of ~$7 billion seems low at 8x. On the F2Q call, we expect management to qualitatively reassure investors that dis-synergies related to the split will be mostly offset by cost savings, and this could be a positive near-term catalyst. Still, while shares may drift higher on this news, we remain concerned that a meaningful reset in Printing operating margin (>40% of total operating income) may be on the horizon. We do not expect major guidance revisions attributable to currency due to appreciation in the euro and some conservatism in HP’s original guidance."

For an analyst ratings summary and ratings history on Hewlett-Packard click here. For more ratings news on Hewlett-Packard click here.

Shares of Hewlett-Packard closed at $33.60 yesterday.

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