HEWLETT-PACKARD CO. $24 (New York symbol HPQ; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.9 billion; Market cap: $45.6 billion; Price-to-sales ratio: 0.4; Dividend yield: 2.4%; TSINetwork Rating: Average; www.hp.com) is a leading maker of personal computers and printers. It also makes server computers and networking products for businesses.
Demand for computers and printers, which account for half of Hewlett’s sales, continues to suffer as consumers shift to mobile devices. As a result, the company’s sales will likely fall to $111 billion in its 2013 fiscal year, which ends October 31, 2013, from $120.4 billion in 2012. However, Hewlett believes its sales will stabilize in 2014 and rise in 2015.
Meanwhile, it continues to make progress on a major restructuring plan that includes merging its computer and printing divisions, simplifying its product lines and cutting 8% of its workforce. Hewlett expects to complete these moves in 2014.
Hewlett will invest some of the resulting savings in faster-growing areas, such as cloud computing. The savings will also help it pay down its long-term debt of $17.1 billion, which is a high 38% of its market cap.
Excluding severance costs and other unusual items, Hewlett’s earnings will probably fall 33.3%, from $4.05 a share in fiscal 2012 to around $2.70 in 2013. In fiscal 2014, it expects its earnings to recover to between $3.55 and $3.75 a share.
The stock trades at a low 6.6 times the midpoint of the 2014 range. That’s due to slow computer sales and uncertainty over Hewlett’s turnaround plan. But the $0.58 dividend still seems safe and yields 2.5%
Hewlett-Packard is a hold.
