Security Analysis: Hewlett Packard


I. THEME:
The purpose of this project is to analyze and recommend a stock of the Hewlett-Packard Company based on several financial instruments.
Major product lines include personal computing devices, enterprise servers, related storage devices, as well as a diverse range of printers and other imaging products. Another information giant competing with HP in the information technology industry is IBM.
Hewlett-Packard is one of the giant players in the diversified computer industry market only after International Business Machine (IBM) after its $13.2 billion acquisition of Electronic Data Systems Corp.

The IT industry has already started to pick up, and it is much anticipated that HP along with other companies will grow along. The year 2008-2009 was a disaster for HPQ as it was for almost all of the other companies too. The year 2010 started off HP with a lot of high hopes, the stock prices climbed up from around $46 to almost $55 in the first quarter, however, the two mid quarters brought sharp decline to HPQ’s share value to almost $37 per share. 2010 has truly been a roller-coaster ride for Hewlett-Packard. With major ups and downs, the last quarter seems to be favoring the company. The price has been steadily climbing start this September, and has made its upward march and is hovering around $42 a piece.
With its diversification and acquisition mission still going strong, we believe that HPQ is one of those under-valued stock companies, which has a lot of potential. Its major expense right now being tied with more asset acquisition, and horizontal expansion in US and around the globe, has a lot to offer in the future. Its recent acquisition of 3PAR and ArcSoft, a leading security and compliance management company, has added more feathers on their hat, whose results will be visible near future. Their merger with Compaq and takeover of Indigo has shown promising benefits for HP and hopefully as will the recent expansion efforts. Hewlett-Packard has been a dynamic company for far too long. In its recent big bang, the Board of Directors has named Leo Apotheker as its CEO and President. He will be replacing Ms Cathie Lesjak, who was serving as an interim CEO since August of 2010.
Also, their cost-efficient efforts while going green at the same time has also catapulted HPQ to newer heights. They recently announced that their eco-friendly techniques has helped them slash energy costs by more than 40%, which for a company of the magnitude is in hundreds of millions of dollars. Although the stock prices of HP has had a pretty rough ride, we still believe that it is one of the major ‘underdogs’ in the industry, whose prices are relatively undervalued. The analysis following in this project will help shed some light into it, but moreover, HP stands for quality products and services at affordable prices; and along with its innovative edge, we can just wait and watch for their climb next.

In 2009 HP’s net revenue was nearly $115 billion, with approximately $40 billion coming from services. In 2006, the intense competition between HP and IBM tipped in HP's favor, with HP posting revenue of US$91.7 billion, compared to $91.4 billion for IBM. The gap of $21 billion widened in 2009. In 2007, HP's revenue was $104 billion, making HP the first IT Company in history to report revenues exceeding $100 billion. In 2008 HP retained its global leadership position in inkjet, laser, large format and multi-function printers market, and its leadership position in the hardware industry. HP also is also second global leader in IT services as reported by IDC & Gartner.

HPQ recent stock price as of October 25, 2010 is $42.88 on a 52 week range of $37.32 low and $54.75 high.

II. BUSINESS ANALYSIS:
A. Profile of the Company
Hewlett-Packard Company is a worldwide player providing information technology services, software, solutions, and products to a wide range of consumers; from an individual to mid-sized businesses to large enterprises as well. HPQ (Hewlett-Packard Co.), operated under the Diversified Computer Systems Industry, has a very wide array of operations from multi-vendor customer services, including infrastructure technology and business process outsourcing, technology support and maintenance, application development and support services and consulting and integration services; enterprise information technology infrastructure, including enterprise storage and server technology, networking products and resources, and software that optimizes business technology investments; personal computing and other access devices; and imaging and printing-related products and services. To better organize and report the economic activities from this cluster of services and products, HPQ has seven segments for financial reporting purposes: Services, Enterprise Storage and Servers (ESS), HP Software, the Personal Systems Group (PSG), the Imaging and Printing Group (IPG), HP Financial Services (HPFS), and Corporate Investments. The HP Enterprise Business provides servers, storage, software and information technology (IT) services that enable enterprise and midmarket business customers to better manage their current IT environments and transform IT into a business enabler. HP Software is a provider of enterprise and service-provider software and services. PSG is a provider of personal computers (PCs) in the world. IPG is the imaging and printing systems provider in the world for consumer and commercial printer hardware, printing supplies, printing media and scanning devices. HPFS supports and enhances HP's global product and service solutions, providing a broad range of value-added financial life-cycle management services.
Morningstar estimates that services will constitute about one third of sales, slightly similar to personal computers (30%), but higher than printers (20%) and enterprise storage and servers (13%) after HPQ’s recent acquisition of the EDS (Electronic Data Systems).

B. Macroeconomic and Industry Analysis
Diversified Computer System provides every conceivable computer service there is under one roof and at very reasonable rates. These services include: custom computer systems, network setup/support, software, consulting, web design and more. DCS can make it convenient and affordable for home or work offices to have a state-of-the-art custom made system.

Leaders in Quarterly Revenue Growth (YoY) Laggards in Quarterly Revenue Growth (YoY)
1 Silicon Graphics International [SGI]
77.30% Cray Inc [CRAY]
-54.20%
2 Netezza Corporation Common Stoc [NZ]
45.20% Pinnacle Data Systems, Inc. Com [PNS]
-11.80%
3 Teradata Corporation Common Sto [TDC]
11.60% International Game Technology C [IGT]
-5.30%
4 Hewlett-Packard Company Common [HPQ]
11.40% International Business Machines [IBM]
3.00%
5 Scientific Games Corp [SGMS]
3.60% Scientific Games Corp [SGMS]
3.60%
6 International Business Machines [IBM]
3.00% Hewlett-Packard Company Common [HPQ]
11.40%
7 International Game Technology C [IGT]
-5.30% Teradata Corporation Common Sto [TDC]
11.60%
8 Pinnacle Data Systems, Inc. Com [PNS]
-11.80% Netezza Corporation Common Stoc [NZ]
45.20%
9 Cray Inc [CRAY]
-54.20% Silicon Graphics International [SGI]
77.30%

Price EPS P/E ratio MKT CAP
HPQ Hewlett-Packard Company USD $41.54 3.52 11.81 96.97B
DELL Dell Inc. USD $12.07 0.75 16 23.64B
AAPL Apple Inc. USD $252.31 13.28 19 230.50B
MSFT Microsoft Corporation USD $24.80 2.11 11.78 214.61B
IBM Intl. Business Machine… USD $129.71 10.57 12.27 163.60B
CSCO Cisco Systems, Inc. USD $23.53 1.18 19.94 134.39B
ORCL Oracle Corporation USD $23.66 1.21 19.58 118.92B
EMC EMC Corporation USD $19.59 0.7 27.87 40.23B
XRX Xerox Corporation USD $9.23 0.46 19.94 12.77B
SGI Silicon Graphics Intl…. USD $6.85 -2.06 210.12M
RSYS RadiSys Corporation USD $8.78 -0.03 212.22M

Diversified computer system industry
It is expected for the next year HP P/E ratio to decrease to 8.23 from the current of 11.41 comparing to the industry average of 16.3. According to financial analysts research, PEG ratio (relative trade-off between the price of the stock, the earnings generated per share, and the company expected growth) for the next 5 years is expected to be 0.95

C. Analysis of the company and the prospects of its major products
After merging with Compaq in 2002, a global technology company Hewlett-Packard became the world biggest computer hardware and peripherals company in the world, ranking 20 in the Fortune 500 list.
HP always recognized the need to compete in global markets. Product diversity of the company is another big advantage that enables the company to hold its position even in the times of recession. As long as the products are good and have reasonable prices there will be a demand. Company has a product span from calculators to laser printers, from notebook computers to servers.
The all-important imaging and printing group, which contributes more than 40% of HP's operating profit. The company's biggest moneymakers are sales from imaging printing group such as ink cartridges.
While HP is feeling the impact from the weakening economy, it still maintained or grew operating profit margins in most of its businesses, evidencing managements focus on cost-cutting.
Major product lines include personal computing devices, enterprise servers, related storage devices, as well as a diverse range of printers and other imaging products. HP markets its products to households, small- to medium-sized businesses and enterprises directly as well as via online distribution, consumer-electronics and office-supply retailers, software partners and major technology vendors.

III. FINANCIAL ANALYSIS:
Financial Ratios and Quick Look to Income Statements
Hewlett-Packard Company Income Statement
All amounts in millions of US Dollars except per share amounts.
9-Oct 8-Oct 7-Oct
Revenue 114,552.00 118,364.00 104,286.00
Cost of Goods Sold 87,524.00 89,454.00 78,887.00
Gross Profit 27,028.00 28,910.00 25,399.00
Gross Profit Margin 23.60% 24.40% 24.40%
SG&A Expense 11,613.00 13,104.00 12,226.00
Depreciation & Amortization 1,571.00 967 783
Operating Income 10,136.00 10,473.00 8,719.00
Operating Margin 8.80% 8.80% 8.40%
Nonoperating Income 0 0 531
Nonoperating Expenses -721 -- --
Income Before Taxes 9,415.00 10,473.00 9,177.00
Income Taxes 1,755.00 2,144.00 1,913.00
Net Income After Taxes 7,660.00 8,329.00 7,264.00
Continuing Operations 7,660.00 8,329.00 7,264.00
Discontinued Operations -- -- --
Total Operations 7,660.00 8,329.00 7,264.00
Total Net Income 7,660.00 8,329.00 7,264.00
Net Profit Margin 6.70% 7% 7%
Diluted EPS from Total Net Income 3.14 3.25 2.68
Dividends per Share 0.32 0.32 0.32

In this part, we will evaluate the profitability, solvency, sustainability and market value of Hewlett-Packard. The financial statements will be used in order to measure, compare and assesses the company ratios. Also, forecasting is included which will predict the sales, operating margin profit. In fact, HP is placed in technology sector and its industry is computer hardware. The technology sector is considered as leading sector in the world of investment due to the fast rate of growth. Nowadays the industry of computer hardware involved high competition between companies.

Profitability
Ratios Profit Margin Return on Assets Return on Equity
HP 6.99 7.47 20.54
Industry 4.31 7.11 17.25
Sector 6.78 5.46 8.47
S & P 500 11.51 6.05 18.14

Profitability ratios indicate how much companies make progress in the business by looking at net income as common numerator for calculating. Profit margin measures how mush earnings generated form the total revenue. It is calculated by dividing net income to sales or total revenue. For every dollar of sales HP generates $0.69 as a profit, in turn, exceeds the industry and sector but lower than 500 leading companies. Return on asset it is also called return on investment indicates the efficient of asset management in order to generate earning. HP generates $0.74 for each dollar invested in assets. Return on equity seems more substantial than the other profitability ratio which reveals the amount of profit generated from stockholder’s equity. HP has high percentage than the industry, sector and S&P 500.
Short Term Solvency
Ratios Current Ratio
Quick Ratio Cash Ratio
HP 1.10 0.96 0.76
Industry 1.43 1.08 -
Sector 1.87 1.70 -
S & P 500 1.00 0.83 -

The solvency ratios measure how much the firm able to meet its obligations. Here we separate solvency ratios in two parts. Short term solvency ratios are associated with less than one year obligation. Current ratio deals with current asset and current liability. It is calculated by dividing current asset to current liability. HP’s total assets can cover total liability by 1.10 times which is considered than the industry and sector. However, quick ratio as the name indicates measures the ability of the firm to liquidate its most liquid asset such cash, account receivable and marketable securities relative to current liability. For HP has lower quick ratio than the industry and sector because of cost of inventory. Cash ratio measure the cash coverage of current liability. It is cash divided by current liability. Since HP cash ratio less than one that means it cannot cover all short debt. This is not bad stigma because HP may allocate cash to other resources.
Long Term Solvency
Ratios Total Debt
Ratio Debt-Equity
Ratio Equity Multiplier TIE Ratio

HP 0.65 47.13 1.47 14.18
Industry - 46.03 1.46 0.54
Sector - 22.74 1.23 1.00
S & P 500 - 177.90 2.78 32.01

The long term solvency ratio shows the investor the firm’s ability to meet its obligations in long term. Total debt ratio indicates the uses of debt by the total assets. For HP uses about 65 percent debt. Debt-Equity ratio and equity multiplier are related since both have common denominator, total equity. Debt-Equity shows the amount of equity and debt the company is using to finance its assets. It is calculated by dividing its debt to total equity. HP debt-equity ratio exceeds the industry and the sector. That’s not always better because high debt-equity ratio means that a company has been aggressive in financing its growth with debt. However, testing the company on how to use debt to finance its assets is measured by equity multiplier. HP equity multiplier is more than the industry and sector which shows that HP depends on debt to finance its assets than average industry. Time interest earned (TIE) is used to measure a company's ability to meet its debt obligations. It is calculated by taking a company's earnings before interest and taxes (EBIT) and dividing it by the total interest payable on bonds and other contractual debt. It is usually quoted as a ratio and indicates how many times a company can cover its interest charges on a pretax basis. Failing to meet these obligations could force a company into bankruptcy. The situation of HP TIE ratio is fair since it can cover it interest bill by 14.18 percent.

Sustainability
Ratios Inventory Turnover Receivable Turnover Total Asset Turnover
HP 14.48 6.91 1.07
Industry 11.68 7.71 1.77
Sector 50.63 3.80 0.50
S & P 500 6.95 9.00 0.56

Sustainability ratios concerned about the firm’s efficiency to generate sales. Inventor turnover indicates how efficient is managed. It is calculated by dividing cost of goods sold to inventory. The more the ratio, the more is efficiency managing inventory. Also, more look how inventory is managed by finding the day’s sales inventory by 365 days divided to inventory turnover. HP has 25.21 days on average before it is sold. HP is more efficient than the industry but less than sector because of aggressive completion between technology companies. On other hand, receivable turnover looks at how fast collecting on credit sales. It is calculated by dividing sales to account receivable. HP collected it credit sales by 52.82 days. Asset turnover shows the proportion of sales generated by the total assets. HP has outstanding asset turnover comparing with the sector and S & P 500 but lower than the industry.

Market Value
Ratios PE Ratio Market-to-Book Beta Price to
sales Price to
Cash Flow
HP 11.96 2.31 1.06 0.79 7.25
Industry 14.03 2.30 1.23 0.67 8.76
Sector 12.83 2.52 1.11 2.26 6.99
S & P 500 17.51 3.04 1.26 2.13 7.93

Market value ratios spotlight on the prospect of the stock with regard previous earnings. PE ratio is defined as market price of the stock divided by earning per share. It measures how much investors are willing to pay per dollar for current earning. The more PE ratio, the more is confidence of investors about firm’s future growth. HP is below the industry but this not threats it growth since the PE ratio could be greater for companies that has small earning per share. The market-to-book ratio reflects the historical cost. It is found by dividing market value per share to book value per share. It is used to compare the market value of the firm’s investment to their cost in case of loose. HP has been successful in creating value for its stockholders since it is more than one. Beta ratio used to measure the how much volatility the company comparing with whole market. For HP it is 6% volatile over the market which means little risky and less return than the industry and the sector. Price to sales ratio values a stock relative to its own past performance. It is calculated by dividing a stock's current price by its revenue per share. HP has higher price to sales ratio than the industry because of increase in sales per share. Price to cash flow measures the market's expectations of a firm's future financial health. Because this measurement deals with cash flow, the effects of depreciation and other non-cash factors are removed. Similar to the price-earnings ratio, this ratio provides an indication of relative value. So, HP is above the sector in prospecting financial health but lower than the industry.

Forecasting of 5 years
Revenue, Gross Profit, and Net Income Growth Predictions
Year 2010 2011 2012 2013 2014 2015
Revenue 128,298 143,694 160,937 177,031 187,653 197,035
Revenue growth ($) 13,746 15,396 17,243 16,094 10,622 9,383
Rev growth 12% 12% 12% 8% 6% 5%
Cost of Revenue 96224 107771 120703 132773 140739 147776
Gross Profit 32,075 35,924 40,234 44,258 46,913 49,259
GM 25% 25% 25% 25% 25% 25%
Operating Income 11,792 13,927 15,528 17,315 21,675 22,518
Net Income 8962.00 10306 11646.1 13160.1 14739.3 16213.26
NI Growth Rate 15% 13% 13% 12% 10%

The companies of technology industry are growing in fast rate but in the real there are some cannot complete the rally. HP rivals to be in the top tech companies but the intense of completion affect coming five year financial performance. The revenue growth rate will be steady after a big jump from year 2009 revenue growth -3% to 12%. This returns to HP producing new product like tablets that nowadays tech companies compete. The gross margin will held stable then decrease since the low achieving gross profit and more cost of goods sold. Operating income which is gross profit deducted operating expenses will fluctuate since the variation of the expense of administrative, marketing and increase in research and development over company. Increasing the R&D expenses interpret that HP want rebuild its reputation. The earning is expected to be low due the competing in hardware market which in turn will reduce the amount of taxes paid, profit margin. EPS will decrese since the low groth of share and increase in net income.

IV. STOCK VALUATION:
Valuating a stock, while calculating might seem a simple task, it actually is never a certain shot. The calculation itself is taking a chance at the future, trying to get a glimpse of what the market might be in the future. While several methods can be used to value a stock, Dividend Growth Rate is the most widely used one as it shows the growth of the payments made by the company to their shareholders. Hewlett-Packards dividend, however, has been constant for the past years. While the company itself is growing, the dividend has managed to stay the same amount. They have been busy expanding their line of products, and services and acquiring other companies to create a wider moat, so as to say. Thus, the Free Cash Flow (FCF) might be an appropriate way to evaluate the company’s stock to see whether the market price is actually over-valued or under-valued.
The Free Cash Flow method measures the amount of free cash available for the investors after paying off their liabilities and expenses. This actually is also one of the better ways to valuate any company’s stock. It helps us analyze the cash the company has at its disposal and also help to predict future cash availabilities, and accordingly value the stock. The following shows us the valuation of HPQ’s intrinsic value of the stock given the required constant growth rates, and required rate of return:
The Free Cash Flow Model gives us a near market value for the HPQ stock of just over $46. It shows that the stock price (market price) is narrowly under-valued and it would be a good idea to buy the stock in this bullish market, and then wait for the price to go up and about. The intrinsic value calculated is without the cash balance in the balance sheet, which if included would put HP’s prices near $54. There may be many reasons as to why the price is under-valued, as listed above in the bullish market point.
Note: See attached excel sheet for Stock Valuation.

V. BULLS VS. BEARS:
There are several different words for used to describe aspects of the stock market. Two terms that are included in this are a bull and bear market. A bull market refers to the investors who are more optimistic about the markets future performance. A bear market is referred to as more of a conservative view of the market, generally when the market is declining over time. The market has been bearish towards Hewlett-Packard Company with the recent purchase of ArcSight, a data storage company. The market considers the buying of ArcSight a bad idea and on the day of the purchase Hewlett-Packard’s stock went down in value.

Forecasting is one of the major challenges in the financial market. What happened has already happened, but the future play of what might happen is where all the money is. As at any given time there are buyers and sellers of a certain stock, different people see market acting in a different way. Hence, the metaphor of Bearish and a Bullish market describes how the market is going to hit in quite a literal way as how a Bear or a Bull would hit. When we say the market is acting bearish, think of how a bear would use its paws to bring you down; it would swiftly move its paws from up to down direction giving you a blow. However, when we talk about a bull, it usually hits you with its horns from downward direction moving upwards. The movement here is supposed to symbolize how the prices are going to change. In bearish market, the price is expected to go down, and in a bullish market, the price is expected to rise. The following reasons might make us more aware as why the HP shares might be a bearish or a bullish market:

Hewlett-Packard Co (HPQ)
HPQ quote (NYSE Exchange)
42.82 +0.69 +1.64%fyi

After Hours: 42.79 -0.03/-0.07% Vol. 119,638
Previous Close 42.13 Bid 42.60
Open 42.39 Bid Size 4,300
Day's High 42.84 Ask 42.90
Day's Low 42.12 Ask Size 200
Volume 23.64 Mil 52 Week High 54.75
Avg. Daily Vol. (13 wk.) 28.10 Mil 52 Week Low 37.32
HPQ Intraday Chart

5d 1m 3m 1y 3y 5y 10y
Beta 1.07
Dividend & Yield 0.32 (0.76%)
Earnings/Share 3.58
Forward P/E 8.43
Market Cap. 97.10 Bil
P/E 11.93
Return on Equity 20.54
Total Shares Out. 2.27 Bil

(Quotes are delayed)

BULLS:
1) The current price per share is near 52 week low. (During last year the lowest price was recorded for 52 weeks). Thus, for the investor it is recommended to buy since the price is at its lowest point during the year.
2) The current P/E ratio of 11.93 is near it's fair value according to the P/E ratio analysis. As HPQ is an older, more established company, the P/E ratio of 11.93 is much lower than the industry average ratio of 16.3 because the investors don't see much growth potential. They are buying for the stability.
-However, it could also mean that this is a stock which has been overlooked by the market and does possess strong future growth potential (a possible contra pick)
- investors sometimes make their fortunes spotting these ‘diamonds’ before the rest of the market discovers their true value.
3) Price to cash flow ratio well below the industry average.
4) Morning star rating is 4 stars out of 5 which indicates a "good buy"
5) HPQ is leading in the diversify computer industry in the following categories:
- Price performance industry leader (1.64%)
- Market capitalization leader ($ 97.1 B)

BEARS:
1) Low earnings, dividends per share
2) Beta (volatility) of 1.07 is slightly above 1 that indicates that the stock is more volatile than the market. The higher risk - the potentially higher return.
3) Low dividend yield of 0.76%. Indicates low dividends per quarter and lower overall return on investment.
4) A lower P/E ratio of 11.93 compared to the industry average of 16.3 may indicate "vote of no-confidence" by the market. Investors have undervalued the stock due to lack of confidence.

VI. The Economic Moat around the Hewlett-Packard Castle:
While the term, The Moat, came around business as Mr. Buffett’s brilliant comparison between a valuable castle and one’s business, the idea itself is a simple one. Building a moat around our business is to gain as much competitive advantage as possible making it harder for the competitors to get us, thus widening the moat as much as we can.
HPQ has been in the business, growing consistently for over 70 years now. With its growth, it has also managed to dig up a moat around its business. The moat, however, is not very wide, because of the intense competition in the market. A case study from Accenture, a global management consulting, technology services and outsourcing company, says ‘sustainability-defined as environmental and social responsibility- is helping HP to grow its leadership in key markets’. One of today’s main concerns among the consumers, is how eco-friendly is the product that they are using. HP has taken these concerns to help make better products, and surprisingly finding ways to cut prices at the same time. Almost all of the large scale customers who requests proposals contain environmental says Klaus Hieronymi, HP’s Europe, Middle East and Africa head for SER. Most of them even ask for details about HPs internal IT energy saving plans and one energy usage by sources. This helps HP to widen their moat a little than before. The long history of HP has given them plenty of chance to increase the size of their moat from time to time. The increase in size of HP along the way with mergers like Compaq, Indigo, and 3Par has also helped create a nice cushion of moat with more productiveness to be seen in near future.
Since the company is a major player in the information technology market, which is an ever changing dynamic market, HP cannot go any minute without any innovation. It has to work harder every day to find better ways to reduce cost, save energy, develop superior technology than its competitors to keep the advantage against them.
VII. RISK:
Risk is one of the biggest concerns of the investors. In fact this is truer for equity investors since the companies that they invest in could go to bankruptcy. Therefore, investors usually would like to reduce the risk of their portfolio by using risk aversion approach. In order to use this approach, they need to measure the risk of the stock, industry, and also the market. The concept of “ Beta” is one of the best ways to measure the market risk, which is very helpful information for investors. In fact, the market risk is usually considered as 1. Therefore, the stocks with a beta value around 1 could be classified as average risk stocks. In addition, treasury bills are usually considered as risk free investment options. Thus, they have a beta value of 0. However, this might be different in some cases since this is a theory, and not a fact in practice. Moreover, the returns from treasury bills are usually very low since they are risk free. In order to get some higher return percentages, we need to take a little more risk. If investors take higher risk, they will get a higher return.
To get some quick opinion, some investors check the highest and the lowest price of the stock in last 52 weeks. They also take a look at the percentage change of the stock and also of the
market in order to compare the stock with the market. In fact, the time frame of those highest and
lowest prices should also be considered by investors.
Beta: 1.06
52 Week High: $54.75
52 Week Low: $37.32
One of the biggest concerns of investors should be HP’ s competitors when they think
about the risk of the stock. Some of the top competitors of HP are Dell, IBM, and Apple. They
usually could compete with Dell and IBM in terms of the technology changes and also price.
However, one of the fastest growing companies in the world is Apple. In fact, Apple makes
the computer industry riskier for other companies with being very popular and growing fast.
However, HP has some advantages against to Apple such as the price of the products and use
of Microsoft windows. Because of these two reasons Apple could not appeal to everyone. Once
Apple lowers theirs prices, the industry will be more risky for HP since this is one of its biggest
weapon against to Apple.
Ticker Price EPS P/E ratio MKT CAP
HPQ 41.54 3.52 11.81 96.97B
DELL 12.07 0.75 16 23.64B
AAPL 252.31 13.28 19 230.50B
MSFT 24.8 2.11 11.78 214.61B
IBM 129.71 10.57 12.27 163.60B
CSCO 23.53 1.18 19.94 134.39B
ORCL 23.66 1.21 19.58 118.92B
EMC 19.59 0.7 27.87 40.23B
XRX 9.23 0.46 19.94 12.77B
SGI 6.85 -2.06 210.12M
RSYS 8.78 -0.03 212.22M

VIII. INVESTING STRATEGY

The market stock value of HP is hovering around $46, which we believe will go up soon, if not later in time. They are getting HP Slate out in the market very soon, which a lot of people are claiming to be an ipad killer. We highly doubt if it will kill ipad, however it can be a very reasonable alternative with the power packed in it’s smaller than ipad size. We think Hewlett-Packard is a very big company, which has not had a chance to make its presence felt yet, but with all the innovation technology at its feet, things can change very soon. And we see it going nowhere but up.
Investing or buying HPQ stock at its current price seems very reasonable. If you already have HPQ stocks in your portfolio, we would suggest holding it, and seeing where the market will soar its prices, and then sell it later. However, if you are thinking of selling the stocks that you already have, it is suggested that you also put a call option where you can buy the stocks later if the prices go up. Short-selling is definitely not advised. As an investor, it would be a very wise idea to keep an eye in the market. HPQ is a very dynamic company with a lot going on all the time. And also, it has a new CEO and President, Mr. Leo Apotheker, who might just show some magic, whether favorable or unfavorable, we will just have to wait and watch.

NOTES:
February 2005
CEO Carly Fiorina steps down amid upheaval about the company's performance following her contested decision to buy Compaq Computer. HP shares trading around $19.
March 2005
Mark Hurd named as new CEO. Starts job in April. Shares trade around $20.
September 2006
HP Chairwoman Patricia Dunn is forced from the board over a disastrous investigation into boardroom leaks to the media that included spying on reporters' and directors' phone records. Stock trading around $36. .
October 2007
HP surpasses $100 billion in annual revenue. Shares trading around $52.
August 2008
HP buys Electronic Data Systems, which sells technology services, for $13.9 billion. Shares trading around $47.
September 2008
HP announces plans to cut 24,600 jobs, or nearly 8 percent of its 320,000 workers, over the next three years as part of the EDS integration. Shares trading around $48.
November 2009
HP announces plans to buy computer-networking equipment maker 3Com Corp. for $2.7 billion. Shares trading around $50.
April 2010
HP announces deal to buy smart phone maker Palm Inc. for $1.2 billion. Stock trading around $54.
Aug. 6, 2010
Mark Hurd resigns as CEO after investigation into sexual harassment claim finds expense reports that were allegedly falsified to conceal a relationship with an HP marketing contractor. HP shares fall nearly 10 percent in after-hours trading to $41.85 as investors reacted to the news released after the close of markets

REFERENCES:
Accenture Study (http://www.hp.com/hpinfo/globalcitizenship/environment/commitment/accenturestudy.pdf)
www.investopedia.com
www.wikipedia.com
Standard & Poors
www.google.com
http://www.make-money-stock-value-investing.com
http://finance.yahoo.com/
http://search.morningstar.com/sitesearch/search.aspx?s=o&q=hpq
http://www.google.com/finance?q=NYSE%3AHPQ
http://money.cnn.com/quote/quote.html?symb=HPQ
http://www.benzinga.com/news/10/09/498969/hewlett-packard-sees-strong-2011-forecast

APPENDIX:
1. Stock valuation excel spread sheet. (Free Cash Flow)
2. Financial analysis spread sheet ( 5 year forecast)

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