HP’s Bandwagon Taking on Weight
If IBM’s stock can rise despite lackluster earnings, why shouldn’t Hewlett-Packard’s?
That at least partially explains why HP’s stock has jumped more than 20% in the last three weeks after languishing for eight months. The run continued Tuesday as HP surged $3.19 to a record $79.88.
HP’s stock broke out of its doldrums April 24 when Prudential Securities boosted its rating to “buy” from “hold.” That marked something of a turning point for the stock, given that the company has disappointed Wall Street repeatedly in recent quarters by falling short of profit estimates.
Wall Street is touting HP as a solid tech bet, despite its stumbles as competition has heated up in key markets. HP dominates the computer printer market, is strong in personal computers and is a leader in scientific instrumentation.
Indeed, many institutional investors now view HP as a “core” tech holding that they must own. That was evident as the stock held up fairly well in the face of the latest earnings shortfalls.
HP is expected to have earned 78 cents a share in its fiscal second quarter ended April 30, up just 4% from 75 cents a year ago. But HP has promised to cut costs in the second half of 1998 to boost profit.
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Many institutions probably would have preferred to wait to buy the stock until those cost savings came through, said Brett Rekas, an analyst at BancAmerica Robertson Stephens. But they had to pile in when the stock began climbing.
“The minute it started to go, anybody on the sidelines said, ‘I’ve got to go now because it might not come back to me,’ ” Rekas said.
HP’s bandwagon now is filling up: On Monday, Salomon Smith Barney analyst John Jones raised his target price range for HP to $87 to $95. On Tuesday, CS First Boston raised HP to “buy” from “hold.”
IBM stock also has drifted up lately despite what analysts believe to be mediocre near-term earnings prospects. HP’s price-to-earnings ratio is 24 based on estimated 1998 earnings, compared with IBM’s 18. But HP is expected to grow faster over time. “If IBM can go up on [its] lousy numbers, why can’t Hewlett go up?” asked David Wu, an analyst at ABN Amro.
Hot for HP
Daily closes of Hewlett-Packard stock on the New York Stock Exchange: Tuesday close: $79.88
Source: Bloomberg News
