Filed Under:
Tickers in this Article: HPQ, DELL, IBM
When it comes to printing and laptop computing, the Hewlett-Packard (HPQ) brand is synonymous with quality. With new CEO Mark Hurd at the helm, HP has embarked on a restructuring plan that has raised the stock 12% since the beginning of 2006.

While Dell (DELL), IBM (IBM) and other PC makers are feeling the pinch of shrinking margins on computer sales, HP's core imaging and printing business has remained strong.

On Tuesday, May 16th, HP reported net revenue of $22.6 billion for the 2nd quarter, which was in line with Wall Street estimates. HP was able to reduce its cost of sales during the quarter, primarily by reducing headcount. At the end of 2005, HP's board agreed to reduce headcount by 15,300 through 2007 as part of its overall cost savings plan.

As a result of strong sales numbers and restructuring cost reductions, operating profit rose 31% from a year ago to $1.8 billion. The boost in profits also pushed EPS up from $0.37 in 2nd quarter 2005 to $0.54.

During yesterday's conference call, HP spelled out that sales for the Personal Systems Group, which accounted for 31% of the $22.5 billion in total revenues, are traditionally lower in the third quarter.

The Personal Systems Group is comprised of HPs desktop and notebook computers, including the innovative twist and click Tablet PC-models. In order to combat some of this sales cycle seasonality, HP is aggressively seeking to hire seasoned salespersons.

HP was trading down yesterday in the $30 dollar range as investors tried to anticipate earnings results. Once the positive results went public, HP spiked up to $32.30 in after-hours trading.

While there maybe a short term sell-off of HP stock as investors take profits on the positive earnings news, the traditionally low earnings expectations for the third quarter makes this an ideal time to invest.

Investing now will position investors to benefit from HPs traditionally strong 4th quarter sales, and provided the company can continue with its strong year-over-year performance, owning HP now also opens the door for solid longer-term growth.

comments powered by Disqus

Trading Center