UPDATE: Barclays Upgrades Hewlett-Packard (HPQ) to Overweight; HP Seen Taking Share in x86 Servers

March 18, 2014 6:47 AM EDT Send to a Friend
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Price: $39.16 --0%

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(Updated - March 18, 2014 10:20 AM EDT)

Barclays upgraded Hewlett-Packard (NYSE: HPQ) from Equalweight to Overweight with a price target of $38.00 (from$33). Analyst Ben A. Reitzes thinks HP can gain share in x86 servers due to security concerns after IBM complete a sale of its x86 server business to Lenovo.

"First, we believe HP could gain share for several quarters in x86 servers at the expense of IBM/Lenovo, which could also help support sales of 3PAR storage gear. Second, while outsourcing is a concern, execution could improve in maintenance (Technology Services) and remains solid in printing and in PCs. Third, free cash flow has recovered nicely and the company seems well positioned for growing buybacks and dividends as it returns "at least" 50% of free cash flow to shareholders. We raise estimates modestly but our FY15 figures could still be conservative," said Reitzes.

"There is historical precedent for HP gaining share in a "commodity business" after an IBM divestiture to Lenovo. We use the IBM divestiture of PC's to Lenovo in 2005 as an analogy and map out the potential for EPS upside in 2014 if HP were to win share in the x86 market at about the same rate it did in 2005 when Lenovo bought the PC business from IBM. Given Lenovo is based in China, there could be some concerns from US customers around security and channels may need time to adjust globally. To be clear, Lenovo could be quite a strong competitor long-term in servers – but for the remainder of 2014 HP could gain," he added.

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 $29.48 yesterday.


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