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Contributors: Douglas McIntyre Jon C. Ogg

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Wednesday, August 16, 2006

What to Expect From Hewlett Packard Earnings

H-P (HPQ) reports earnings after today's close. The street is expecting $0.47 EPS before one-time items on revenues of about $218 Billion, which would be up from last year's $0.36 and $20.8 Billion for the same quarter.

While the company is still quite dependent on printing and imaging for a contribution to profits, the new licensing, software, and consulting plays it has been entering should point that the future bottom line is less and less dependent on that historical stigma.

The estimates for next quarter ahead of today's guidance appears to be about $0.59 EPS and $24 Billion. What is interesting this time around is that as we get closer to the closing of Mercury Interactive $4.5 Billion cash buyout, the company can attempt to actually obscure the numbers and the guidance if it chooses. It can also throw in its ongoing restructuring efforts as a shield if it need to cloud any absolute forward numbers. It is likely that this will not be actually shown until the conference call when the management shows body language and by saying how much certain milestones depend on the ongoing restructuring and on the progression of the Mercury business post-acquisition. We'll also see how the cost saving Blade servers are contributing to the overall operations. The company transformed the PC-business by allowing for Intel and AMD chips.

So the reason we are bringing this up is because the company is sort of in the spot light right now. Dell (DELL) has needless to say been stinking, so there is one key question: Is Dell in Hell partially because of H-P, or is H-P actually going into the same soup from the PC-business just one or two quarters behind.

So even with the street having a low bar for tech companies, the street is expecting the company to deliver on its turnaround. They are being treated well ahead of earnings up $0.59 at $34.58, which puts it at a multi-year high since the late 90's and early 2000 haydays. Options traders appear to be braced for up to a 3.7% move in either direction, but that is after today's move and only about 48 hours shy of August options expiration date. If the company hits on all cylinders and offers more good news ahead, then you might as well expect that a new higher trading range for its stock could be established. You can also expect the street to forever more say "Carly who?"

CEO Mark Hurd will be giving a conference call that can be accessed HERE at 5:30 PM EST via the investor relations page.

Jon C. Ogg
August 16, 2006

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