Hewlett-Packard Company (HPQ) reports earnings Tuesday, but the only thing the market cares about — and the main driver of HPQ stock — is the tech giant’s pending breakup into two companies.
HPQ stock was having an excellent year even before it announced its plan to split into a consumer-focused PC and printer business, and a hardware and services company for enterprise customers. And despite shares tumbling along with the rest of the market soon after the breakup announcement, HPQ stock has come roaring back.
Indeed, HP stock is up more than 30% for the year-to-date.
Market sentiment has been improving on Hewlett-Packard stock for a couple of years now, at least since Meg Whitman became chief executive. Long an als0-ran in enterprise IT and dependent on low-margin sales of commoditized PCs and printers, Whitman gets credit for reinvigorating the company and getting HPQ concentrating on innovation again.
To that end, HPQ is targeting the very young business of 3D printing. It’s already designed a 3D printer that’s 10-times faster than anything on the market to woo enterprise customers. A 3D scanner to go with it is another welcome sign of innovation.
But the imminent split up of Hewlett-Packard is still the most important thing affecting HPQ stock, regardless of how earnings pan out.
HPQ Stock a Long-Term Laggard
Once a leader in almost every industry in which it competed, HPQ started to fall behind with the advent of mobile computing, the emergence of the cloud and competition that became ever more intense.
It’s gotten bad enough that Hewlett-Packard is actually shrinking on the top line. As recently as 2011, it had revenue of $127.25 million for the 12 months ended Oct. 31. This year, that figure came to just $112.18 million.
Naturally, the market has taken that weak performance out on HPQ stock; It’s off a painful 25% over the last five years even as the S&P 500 gained 88%.
Those days of serious underperformance might be coming to an end, but HPQ has a lot of catching up to do, and the most recent quarterly report is unlikely to get it there.
Hewlett-Packard earnings are forecast to rise to $1.06 a share from $1.01 a share in the same quarter a year earlier, according to a survey of analysts by Thomson Reuters. Revenue, however, is expected to decline once again, by more than 1% to $28.76 billion. An upside surprise on the top line would probably do wonders for HPQ stock, at least for a session or two.
That might make HPQ stock attractive to traders for very short-term positions, but as investment it is strictly a hold. The stock isn’t particularly cheap, fetching more than 13 times forward earnings with a long-term growth forecast of less than 5%.
The uncertainty of the breakup makes HPQ stock even less attractive these days. If you buy HPQ stock now, you’re going to get holdings in two companies later — and one of them might have no place in your portfolio.
HPQ stock’s future hasn’t been this bright for some time, but investors would to wait for the corporate split to become a reality.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
