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Will Earnings Tonight Confirm H-P Is a Turnaround Story Worth Buying?

Will Earnings Tonight Confirm H-P Is a Turnaround Story Worth Buying?

It's the hottest stock that almost nobody loves. Hewlett-Packard's (HPQ) nearly 50% gain so far this year has left it in a league of its own atop the 30 companies that make up the Dow Jones Industrial Average (^DJI), and yet, its support on Wall Street is razor thin.

Despite this stock's rebound, its forward PE ratio of 6, the fact that 25% of its market value is from cash, and it easily covers a 2.5% dividend yield, the pride of Palo Alto is still in need of some love.

As my co-host Jeff Macke and I discuss in the attached video, with the stock surging and expectations weak, the company's 2nd quarter earnings results due out after the close of trading today, are taking on special interest.

Analysts are expecting earnings per share to tumble to $0.81 from $0.98 a year ago. While the costs involved in restructuring a business with 335,000 employees are immense, interested investors would be wise to know that FactSet data shows H-P has not missed its bottom line consensus estimate in three years.

Unfortunately, the same cannot be said about its shrinking sales results, which have left Wall Street wanting more in 3 of the past 5 quarters. This quarter, analysts have revenues pegged to slump about 9% to $28.0 billion, but don't hold your breath.

While some would take weak results earlier this month from rival computer-maker Dell (DELL) as a warning, it's not necessarily clear that the Texas-based takeover target didn't poison its results in order to improve the odds that its founder will be able to take the company private.

Although Hewlett-Packard clearly still has a lot to do to stabilize its PC business, that unit actually ranks 4th and accounts for a smaller slice of the operating profit than its printer, enterprise/networking, and service businesses.

Ultimately, the tone of the day will rest in the hands of CEO Meg Whitman, who is still less than two years into her turnaround tenure. Even though expectations are low, the key result of the quarter may not even be a number at all, but rather the tone and tenor she sets on the conference call, and her ability to convince investors to keep believing that better times are coming.