December 13, 2012
HPQ fights its way back, but riding Icahn?
Hewlett-Packard stock prices made their way out of the $11 range and back into the $14.50 territory this week. The backing for the vendor which makes the migration target environment HP-UX saw a rally of 26 percent over the last 15 trading sessions. That's the period since HP last made a comment or a report on its Autonomy debacle, or the second straight quarter of red ink overall.
After trading 154 million shares during that rock-bottom November 20, HP's fortunes have risen. But for what reason, the analysts are asking. Not on the strength of the HP Discover announcements in Germany last week. HP didn't push above $14 a share until Monday. Its appointment of new EVP Mike Nefkens to lead HP Enterprise Services emerged a week earlier. Its beefed-up Converged Cloud Portfolio made its debut December 4. No seemingly plausible connection there, either.
HP announced its bedrock quarterly dividend of $.13.2 a share as usual, payable to stockholders of record as of Dec. 12. That would have helped get the cart out of the trading ditch this week. But another rumor about the maker of Integrity-Itanium servers emerged over the last few days. Takeover king Carl Icahn might be purchasing HP stock.
Or not, since the 5 percent purchase of outstanding shares threshhold hasn't been triggered yet. Once a stock gets a buyer at that rate, SEC rules kick in and the curtain is pulled away. Nobody knows if Icahn could make a difference to a company whose printer business has stopped growing and whose PCs are now running behind Lenovo's. And some are asking if the legendary activist investor even wants to shake up HP's board.Insider Monkey's Marshall Hargrave thinks that the outstanding HP shares, even at $14, are too big of a bite for even Icahn's tastes. Icahn would have to purchase $1.4 billion of HP stock to set off the 5 percent report.
Although the initiatives and far reach of HP makes it a compelling long-term value play, it does appear to be a bit out of Icahn’s scope and size. While it might not be likely that Icahn is backing HP, we believe that investors can buy in at a relatively reasonable price. HP trades at the cheapest forward P/E (4.1x) compared to Dell (6.2x), Microsoft (8.4x) and Apple (9.3x). Assuming HP can initiate key savings, it very well could trade in line with Dell on a P/E basis given its market share dominance.
Therese Poletti at Market Watch notes that some investors would like to see pressure to spin off HP's server business, including that Itanium line that HP 3000 customers follow -- at times -- when they turn off their MPE servers.
An outside investor like Icahn -- or someone else -- could argue that the corporate business, which includes services, servers, and software, does not need to be attached to PCs and printers. Other have argued, however, that the company gets more purchasing power when buying for all the hardware businesses at once.
HP has argued that "we sell more servers when we sell everything" over the last two years, while its fortunes skidded. Post-Mark Hurd, the value of such a consolidated HP has fallen 70 percent.
It's encouraging to see Hewlett-Packard rally itself, if only to protect the futures of its technology from a takeover sell-off. One of the last things HP divested itself of, tech-wise, was the WebOS environment for tablets. HP-UX is unlikely to ever suffer such a fate as being declared open software. If HP couldn't do it for MPE/iX, just imagine how a product serving big customers will fare.
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