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How Long Can the HP Rally Last?

Bernice Napach
Daily Ticker

Hewlett-Packard (HPQ) is many things —a PC maker, printer manufacturer and software company — and on Friday it was a perfect example of stock market expectations trumping current reality. The stock soared 10% in early morning trading, boosted by an earnings report that, despite falling revenues and net income, beat expectations.

Its profit excluding restructuring and other charges was 82 cents a share—well above the 71 cents analysts had expected. But revenues were down 6% to $28.36 billion and net income, including restructuring and other charges fell, 16% to $1.23 billion, or 63 cents a share.

The Daily Ticker’s Henry Blodget says it was a smart move by HP to issue a warning in the previous earnings quarter. Last quarter the company announced a five-year recovery plan as well as an $8.8 billion writedown of its $10 billion purchase of Autonomy, a British-based search engine company.

It was “a complete reset of expectations…they got all the bad news out of the way," says Blodget.

And HP stock rallied late Thursday, gaining almost 6%.

"Now the expectations [for HP] are so low that if the company doesn’t do anything horrible or surprising like announcing a major writeoff or a new CEO the stock goes up," says The Daily Ticker’s Aaron Task. He credits CEO Meg Whitman for the current rebound at the company but wonders if anyone is capable of the “huge turnaround” that HP needs.

The key issue, says Blodget, is whether HP “is in businesses that will grow again or does it have to radically restructure the company? It’s not in tablets or smartphones where the growth is these days. They probably want to grow there.”

Still, HP’s stock price could rise further. It’s trading about five times earnings — a “staggering low multiple,” says Blodget.

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