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H-P Settles Shareholder Lawsuit

Zacks Equity Research

Shares of Hewlett-Packard (HPQ) increased 2.69% on Apr 1 after it reportedly settled a long standing shareholder lawsuit for $57 million. U.S. District Judge Andrew Guilford in Santa Ana, CA had accepted the lawsuit filed by certain shareholders of the tech company for allegedly ‘defrauding’ them by discarding a certain business model undertaken in 2011.

Moreover, the company took several initiatives that backfired and led to share price declines during the period. These initiatives involved the scrapping of WebOS, buying Autonomy plc for $11.1 billion and the decision to spin-off the personal computer business. Later, the company backtracked from the spin-off decision. Additionally, H-P suspended sales of its TouchPad.

Arkansas Teacher Retirement System, the Labourers' Pension Fund of Central and Eastern Canada in Oakville, Ontario were among the plaintiffs who filed the complaint accusing H-P of decisions that led to significant erosion in market capital and shareholder value during the period.

Now, with the settlement, the company can breathe a sigh of relief and concentrate on its shift to a high-margin software and services business.

The settlement would not possibly bear any material impact on H-P’s financials. The company has a strong cash balance of $16.17 billion and generated a healthy cash flow of $2.99 billion in the fiscal first-quarter 2014.

H-P’s traction in the cloud, security and big data segments are the positives, going forward. Restructuring initiatives and management changes are also expected to keep the company on the growth path. The company’s shift to the core software business will also help it to achieve long-term profitability.

However, continuing macroeconomic challenges and competition from International Business Machines (IBM) and Oracle (ORCL) are the headwinds, going forward.

Currently, H-P has a Zacks Rank #2 (Buy). Investors may consider a better-ranked stock like Juniper Networks (JNPR) sporting a Zacks Rank #1 (Strong Buy).

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