HP Shares Climb After Whitman Forecasts Stabilizing Sales

Hewlett-Packard Co. (HPQ) shares climbed the most since May after Chief Executive Officer Meg Whitman promised more cash for investors and said sales are stabilizing following a two-year drop.

The stock rose 8.9 percent to $22.60 at yesterday’s close in New York. After reaching their lowest in a decade in November, Hewlett-Packard shares have jumped 59 percent in 2013.

“I’ve got real confidence that we’re headed in the right direction and we will turn this thing around,” Whitman told analysts at a meeting in San Jose, California.

As Whitman enters her third year at the helm, she’s contending with declining sales from slack demand for personal computers and stepped up competition in the business-technology market. While analysts are projecting a 3 percent drop in 2014 sales to $107.6 billion, according to data compiled by Bloomberg, Whitman said she expects “revenue to stabilize.”

The Palo Alto, California-based company said in a slide presentation that the year-over-year revenue drop “moderates” after fiscal 2013. Profit excluding some items next year will be $3.55 a share to $3.75 a share, compared with the average analyst estimate of $3.61.

Prior to the 2013 rally, Hewlett-Packard shares plunged each of the previous three years, losing so much value that they fell out of the Dow Jones Industrial Average.

“Expectations were low” entering yesterday’s meeting, Brian Marshall, an analyst at ISI Group, wrote in an e-mail. The stock pop is “just a short-lived bounce in our view.” Marshall has the equivalent of a hold rating on the shares.

Whitman, 57, is trying to move past a tumultuous period during which the company ousted her two predecessors and then took an $8.8 billion writedown on its acquisition of software maker Autonomy Corp.

Generating Cash

Maynard Um, an analyst with Wells Fargo Securities LLC, wrote in an Oct. 7 note to clients that Hewlett-Packard is generating cash, remains “very focused on improving its balance sheet” and has improved relationships with customers and resellers during Whitman’s tenure. He has the equivalent of a buy rating on the shares.

The company said yesterday that at least 50 percent of its free cash flow will be returned to shareholders via dividends and buybacks in 2014. Hewlett-Packard said in August that it expects free cash flow to approach $8 billion for fiscal 2013.

For the past two quarters, Hewlett-Packard has paid a dividend of 15 cents a share, amounting to a 2.6 percent indicated yield. That’s higher than the average of 1.7 percent for the Standard & Poor’s 500 Information Technology Index.

Scrapped Forecast

Hewlett-Packard is losing out to Apple Inc. (AAPL) and Samsung Electronics Co. as consumers and businesses shift to smartphones and tablets. In the market for servers, storage and networking equipment, Whitman has cited a “weak enterprise spending environment,” and in August she scrapped a prediction that Hewlett-Packard would return to growth in 2014 after two years of declines.

Sales for fiscal 2013 are expected to drop 7.8 percent to $111 billion, according to the average of analysts’ estimates compiled by Bloomberg. PC shipments worldwide dropped 8.6 percent to 80.3 million in the third quarter, researcher Gartner Inc. reported yesterday.

Whitman said that Hewlett-Packard faces changes in the competitive environment as longtime partners Intel Corp. (INTC) and Microsoft Corp. become challengers. Hewlett-Packard’s PC business has relied on Microsoft’s Windows operating systems and Intel’s chips.

Microsoft is going after consumers directly with the Surface tablet computer, while Intel is helping Google Inc., (GOOG) Facebook Inc. and others build servers, removing the need for Hewlett-Packard hardware. Hewlett Packard, meanwhile, is using chips and operating systems from other suppliers.

To contact the reporter on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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