Hewlett-Packard Rises as Cash Return Anticipated

Hewlett-Packard Co. (HPQ) rose to the highest price in 10 months after Morgan Stanley upgraded the shares, citing the potential for the company to return more cash to investors.

The shares advanced 2.9 percent to $22.83 at the close in New York, the highest since May 14. The stock has gained 60 percent this year, compared with an 8.8 percent increase for the Standard & Poor’s 500 Index.

Hewlett-Packard may generate free cash flow of about $6.7 billion in the 2013 fiscal year, almost 35 percent more than the company’s $5 billion forecast, according to Katy Huberty, an analyst at Morgan Stanley. As Chief Executive Officer Meg Whitman works to revive growth amid a slump in sales of personal-computers, restructuring may result in $2.2 billion in savings by the end of fiscal 2014, Huberty said.

“Cash return in the form of a buyback or higher dividend is a likely scenario,” Huberty wrote in a research report today. She upgraded the shares with a buy recommendation and a $27 target price. “Even without revenue growth, we expect HP to grow earnings per share and free cash flow over the next three years.”

Hewlett-Packard’s core personal-computer business is shrinking because of competition from lower-priced rivals such as China’s Lenovo Group Ltd. (992) and demand for mobile devices made by companies including Apple Inc. and Samsung Electronics Co. Hewlett-Packard’s enterprise business also is being undermined as companies look for more Internet-based cloud services.

Whitman last September said the Palo Alto, California-based company planned to cut 29,000 jobs through the end of the 2014 fiscal year.

To contact the reporter on this story: Lisa Rapaport in New York at lrapaport1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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