HEWLETT-PACKARD CO. $34 - New York symbol HPQ

HEWLETT-PACKARD CO. $34 (New York symbol HPQ; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.9 billion; Market cap: $64.6 billion; Price-to-sales ratio: 0.6; Dividend yield: 1.9%; TSINetwork Rating: Average; www.hp.com) plans to break itself into two separate companies.

The first firm, called Hewlett-Packard Enterprise, will sell computing products, like servers and analytics software, to businesses and governments. It will also offer cloud computing services and financing. Hewlett-Packard Enterprise will have annual revenue of $58.4 billion and gross profits of $6 billion.

Meg Whitman, Hewlett’s current chief executive officer, will become this firm’s CEO.

The second company, called HP Inc., will focus on the slowergrowing personal computer (59% of its revenue) and printer (41%) markets.

HP Inc. will have annual revenue of $57 billion and $5 billion of profits. Ms. Whitman will be its chairman.

Hewlett will hand out shares in both firms to its shareholders in November 2015. Investors are not liable for capital gains taxes until they sell their new shares.

The company rejected a similar plan in 2011. However, Hewlett’s recent restructuring plan, which involved cutting jobs and simplifying its product lines, has increased its profit margins and strengthened its balance sheet. That gives these new firms more flexibility to invest in new products and make acquisitions.

HP Inc. will likely pay a dividend comparable to Hewlett’s current yield (the $0.64-a-share payout yields 1.9%), while the Enterprise business will use its excess cash to repurchase shares.

Meanwhile, Hewlett now expects to earn $3.70 to $3.74 a share, before unusual items, in the fiscal year ending October 31, 2014. The stock trades at just 9.1 times the midpoint of that range.

However, that low multiple reflects weaker laptop and desktop sales as more users switch to handheld devices. As well, the Enterprise salesforce won’t exclusively cross-promote HP Inc.’s products to its large clients.

Hewlett-Packard is still a hold.

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