20 August, 2008

Hewlett-Packard's Strong Quarterly Showing

Not to be outdone by the 8 Golds won in Beijing by Michael Phelps, or Jamaica's Usain Bolt's 100-200m World Record double, Hewlett-Packard (HPQ) showed its quickness in dealing with eroding economic conditions and the apparent stagnation in technology spending. The company reported a quarter besting analyst expectations in all key metrics, sending shares higher.

The computer company reported earnings of $2.03Billion ($0.80/share and $0.86/share excluding certain costs), which compared favourably to the $0.84/share expected by analysts. On the revenue side, the street wanted $27.4Billion, but got $28Billion, another plus for HPQ. These positive kept coming for Investors in the form of guidance where HPQ was once again ahead of the curve, hitting analyst expectations for revenue and guiding profit a couple cents higher than previously anticipated.

One of the biggest growth areas, Notebooks, rose 26% for HP, keyed by demand in Europe and Asia, as the computer maker battles for the market share top dog prize with Dell (DELL). This was a big driver for the company this quarter in allowing it to post year over year profit and sales increases of 14 and 10% respectively. Now, Hewlett-Packard is a giant global company, and the attractiveness of foreign business in foreign currency has boosted the bottom line to be sure, but I for one like where management is going and what is being said. Even though a rising US Dollar may prove less favourable for foreign business results in the coming quarters HPQ is positioned in a growth area, with popular products.

While its dividend is nothing to write home about, it does pay one, and HP has I feel, significant growth in front of it, and that's where the money will be made on this investment. Even as the stock climbs several percentage points on the results, it is down about 15% from its highs of the past year, which means it'll have work to do through this quarter and next to rally back near those mid $50s ranges. But I feel much more comfortable hearing a CEO like Mark Hurd, coming out saying "We have a significant opportunity" rather than an executive group that complains about the economy or the tight wallet of today's consumer.

Disclosure: Author holds no position in the above mentioned companies.