Hewlett Packard's future looks strikingly good. Investors and traders seem to be waking up to that fact ahead of upcoming earnings. By the end of fiscal 2014, shareholders of HPQ will find themselves holding equal shares of two companies instead of one, both of which have significant capability to enhance shareholder value. Investors appear to be saying, "sign me up," as the demand for shares has taken prices to a new 52-week high.
That's not too surprising considering CEO Meg Whitman's announcement that she will head up the HP Enterprise company and the former Personal Systems division will be headed by Dion Weisler. Weisler is a good choice and in the end, choosing him may prove to be Whitman's enduring legacy.
Investors may not know or agree exactly about why the company's future looks bright, but there is little argument about the overall consensus. The recent technical strength shows a break out at $36.50. This signals a pattern which could imply a price target of greater than $40. The break above resistance suggests that investors have bought into the company's upcoming opportunities (see figure below).
The technical pattern agrees with the most recent analysts report and is in line with the projection issued by Deutsche Bank which reiterated its buy rating on HPQ Monday. The majority of analysts publishing in the last six months have given HPQ positive readings. In fact, 7 out of the last 9 analysts to publish a rating either upgraded to or reiterated a positive status.
Fundamentally HPQ may be undervalued in the eyes of many investors. This could be driven by the risk that investors associate with the company's upcoming future regarding the recent announcement of the split between divisions. It has a current P/E of 14.06 and a forward P/E of 9.44. These are below the average for its industry group and for the market at large. Perhaps that is why institutions added over 11.5 million of HPQ to their holdings in the last 3 months. Institutions and retail traders alike seem to hold the stock in demand. Options pricing anticipates less than a $1.50 move either way on earnings day. That implies that traders are more likely to hold HPQ through earnings--a bullish sign.
There is a lot of attractive news on HPQ at the current time. Not only news on its upcoming split but also news about its entry into the 3D printing space. All this ahead of the the upcoming earnings report are attracting investor’s attention. Additionally HPQ has a lot of name recognition that has kept people interested and trusting in the company. This name recognition could be an important factor in determining the value of the company as it prepares for the transition. A lot could go wrong, but the market will overlook that if it trusts the brand.
That's important for at least one reason. The 3D printer market has a lot of untapped potential. A bigger player in the industry might be able to crack the enterprise market. If HPQ were to help this new technology move beyond its boutique status, then the potential growth for HPQ would be phenomenal. The current pricing on HPQ, however, is not reflecting any such opportunity, thus it remains undervalued for now.
