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Analyst on HP: ‘We Don’t Like the Stock Here’

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Smart phones and tablets may be making consumers' lives easier, but they could soon take a serious toll on Hewlett-Packard's results, according to one analyst.

Instead of printing photos and news articles, consumers are viewing and reading on their mobile devices, said Jefferies Equity Analyst Peter Misek. Add to that cheaper tablets in the $100 range making their way to stores like Costco (COST) and Wal-Mart's (WMT) Sam's Clubs, and demand for HP (HPQ) printers and ink could see an even steeper decline.

"We don't like the stock here, primarily because we think around 50 to 60 percent of their operating profit is in secular decline," Misek said.

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Sales of printer and ink products in particular make up about 40 percent of HP's operating profit, Misek said. And printer sales today give investors a look into future ink sales.

"Hardware is a forward-looking indicator, so if we have a 10-percent-plus decline in hardware, we think that will bode poorly for next year's sales," Misek said.

In the short term, Misek expects HP to report quarterly earnings in line with its guidance of 80 to 82 cents per share. "But the critical point for the stock is what are numbers going to do for next year," Misek said.

In the next year or two, as printer and ink sales decline, HP may be able to fall back on its enterprise products, Misek said.

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By bundling its hardware, software and services for business customers, that segment is already improving, Misek said. "The ability to tie them together kind of takes the strengths of all of them and takes away the weaknesses," Misek said.

Still, HP's enterprise products are facing increasing competition from companies like IBM (IBM), which is gaining traction with business customers thanks to its Watson learning computer applications.

-- Misek does not own shares of Hewlett-Packard.
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