16 August, 2007

Hewlett-Packard Firing on all Cylinders with Earnings Beat

Hewlett-Packard (HPQ) reported today after the close. The results were nothing but positive as the largest computer maker continued to take market share from its main rival, Dell (DELL). The computer maker reported $0.71/share earnings excluding items on $25.4Billion in revenues.

Both figures topped estimates and the revenue number showed top-line growth of 16%. That's good news for HP investors, however the better news came with the company forecast for next quarter. Forecasting 2-3 cents higher than previous analyst estimates showed that indeed all businesses are doing very well and growth is set to continue worldwide. Shares of the company hit a 52-week high of $49 recently and have not fallen as hard as other growth tech names such as Apple (AAPL) or Research In Motion (RIMM).

The growth in PC shipments for the company shows that it is on par with high growth Apple machines in the sector as both companies continue to leave Dell in the dust. IDC market research reports showed recently that HP increased its PC shipments by over 35% year over year. Dell is trying desperately to lure customers back but HP is working very well in all channels and is the PC of choice while Apple is enjoying its great success with Macs.

The cost cutting plans implemented by management a couple years ago are paying dividends now as HP competes in all PC sectors and is widening its market share lead across the globe. Even the printer division is doing better as market share is being taken from Lexmark and Dell here also. HP trades at a forward P/E multiple in line with IBM and several points cheaper than Dell. This is a bargain of a growth technology company with the Price-Earnings-Growth ratio now under 1.

The market trends currently don't support heavy bullish buying as credit fears and liquidity problems sweep across all sectors but a winner is clearly here in HPQ and its difficult to stand idle when solid growth like this is available for such a discount. Hewlett-Packard proved in its latest quarter that it is the biggest and best PC company in the world. Investors should take notice.

Disclosure: Author is long AAPL and holds no position in HPQ, DELL, RIMM

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