UPDATE: Credit Suisse Starts Hewlett-Packard (HPQ), Big Things To Come
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Price: $27.79 +0.62%
Rating Summary:
16 Buy, 20 Hold, 2 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 11 | Down: 18 | New: 17
Rating Summary:
16 Buy, 20 Hold, 2 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 11 | Down: 18 | New: 17
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Credit Suisse initiated coverage on shares of Hewlett-Packard (NYSE: HPQ) today with an Outperform rating and $60 price target.
The firm believes that the company's transition from a hardware-centric business model continues, with services, storage, and networking which increases the mix and will drive group margins higher. With this, Credit Suisse sees no reason why they can't hit a $6 EPS for CY12 and 45% in upside potential.
With Credit Suisse's proprietary IT services demand forecast suggesting that when compared to GDP growth, hardware/software attach or to corporate profits; global IT services are being under-consumed globally. This allows a backdrop for accelerating revenue growth. With a combination of faster growing emerging markets, robust end to end offings, and their current cost saving program; the firm believes that they will drive 2011 and 2012 segment margins to 15.5% and 16% and to over 17% by FY14.
The firm comments that there is three main moves that their new CEO should consider:
Shares of Hewlett-Packard closed at $40.14 yesterday.
The firm believes that the company's transition from a hardware-centric business model continues, with services, storage, and networking which increases the mix and will drive group margins higher. With this, Credit Suisse sees no reason why they can't hit a $6 EPS for CY12 and 45% in upside potential.
With Credit Suisse's proprietary IT services demand forecast suggesting that when compared to GDP growth, hardware/software attach or to corporate profits; global IT services are being under-consumed globally. This allows a backdrop for accelerating revenue growth. With a combination of faster growing emerging markets, robust end to end offings, and their current cost saving program; the firm believes that they will drive 2011 and 2012 segment margins to 15.5% and 16% and to over 17% by FY14.
The firm comments that there is three main moves that their new CEO should consider:
- Re-invigorate the software segment, which contributes only 5% to profit and is a tenth the size of IBM's software business, through hiring and M&A. Here the company's projected cumulative FCF of $65bn over the next five years offers flexibility.
- Drive an all-out price war to accelerate share gains in networking at Cisco's expense, since segment margins, though lower than Cisco's, are materially accretive to HP's 24% gross margins.
- Consider exiting the PC business in light of its commodity status and limited strategic benefits.
Shares of Hewlett-Packard closed at $40.14 yesterday.
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