For the first time in 11 quarters, Hewlett Packard (NYSE: HPQ) reported positive revenue growth when the company reported its third quarter results and a strong free cash flow with a $5 billion net cash position.
The question investors are now asking is: Who might Hewlett Packard buy, and why?
Analysts at Raymond James pondered the same question and came up with an answer.
In a note to clients on Monday, Brian Alexander of Raymond James identifies the most likely candidates that Hewlett Packard may look to acquire.
“H-P management has indicated its readiness and willingness to make acquisitions following a three-year hiatus that can only be described as an Autonomy hangover,” Alexander wrote. “Interestingly, H-P did not repurchase as much stock as it intended in the most recent quarter because management was 'in possession of material, non-public information,' which we assume relates to a pending acquisition."
Alexander speculates that Hewlett Packard will shop around for a deal size of roughly $3 billion to $5 billion and acquire a company that has a clear path to profitability and does not have an excessive valuation.
The top 10 acquisition targets according to Alexander are:
1. Privately held Sumo Logic could help strengthen Hewlett Packard's ability to compete with Splunk.
2. Privately held Hortonworks is already entered in a partnership with Hewlett Packard, and an acquisition could help Hewlett Packard participate in “big data” deployments.
3. Palo Alto Networks (NASDAQ: PANW) could provide Hewlett Packard with an aggressive move into network security and add marketing and distribution “muscle” versus Cisco. Alexander notes that the company's management “would likely not sell.”
4. Fortinet (NASDAQ: FTNT) could also add further marketing and distribution muscle versus Cisco. Alexander notes that the company's CEO has sold multiple companies in the past and may be more open to an acquisition.
5. FireEye (NASDAQ: FEYE) is “hot” in the security category, and its incident response fits well with Hewlett Packard's Services group.
6. Arista Networks (NASDAQ: ANET) complements Hewlett Packard's networking and SDN efforts; however, given the company's recent IPO, the company is unlikely to sell.
7. Privately held Cumulus Networks supports Hewlett Packard's SDN objectives and could leverage Hewlett Packard's platform further.
8. Privately held Adara Networks also supports Hewlett Packard's SDN/NFV objectives, and the companies have worked together in the past.
9. Privately held SimpliVity and its Omnicube deduplication and compression
technologies could enhance Hewlett Packard's converged offering and further leverage its platform.
10. Privately held Actifio provides a “leading edge” secondary storage technology for backup and recovery, archiving, and disaster recovery. An acquisition would give Hewlett Packard “instant mindshare lead” in the market and better compete against legacy storage vendors.
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