HEWLETT-PACKARD CO. $20 (New York symbol HPQ; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 2.0 billion; Market cap: $40.0 billion; Price-to-sales ratio: 0.3; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www.hp.com) recently announced a major restructuring that includes merging its computer and printer businesses into a single division. The company also plans to cut 8% of its workforce over the next two years.
Hewlett expects to pay $3.5 billion in severance and related costs. However, these moves should save it $3.0 billion to $3.5 billion a year. The company will put most of these savings toward developing new products and services, especially in fastgrowing areas like cloud computing, analytics software and computer security.
In Hewlett’s fiscal 2012 second quarter, which ended April 30, 2012, sales fell 3.0%, to $30.7 billion from $31.6 billion a year earlier.
Printer sales fell 10%, server sales declined 6% and computer services fell 1%. These declines offset higher sales of software (up 22% thanks to last year’s $10.3- billion purchase of business software maker Autonomy Corp.) and financial services (up 9%). The personal computer division’s sales were flat.
Earnings fell 28.3% in the quarter, to $1.9 billion from $2.7 billion. Earnings per share fell 21.0%, to $0.98 from $1.24, on fewer shares outstanding. These figures exclude unusual items, such as restructuring charges.
The stock trades at just 4.9 times Hewlett’s projected 2012 earnings of $4.06 a share. That low priceto- earnings ratio reflects the uncertainty surrounding Hewlett’s restructuring plan and strong competition from other computer makers. However, the company’s increased focus on services and software improves its long-term prospects. The $0.53 dividend yields 2.7%.
Hewlett-Packard is a buy.
