STOCK WATCH


Hewlett-Packard: Will the Stock Hold Up?

So far, a high-profile investigation has not meant a plummeting stock price.



Hewlett-Packard may be entangled in a scandal, but you wouldn't know it by looking at its stock price over the past few weeks. Since word spread earlier this month about HP's possibly illegal investigation into news leaks from its board of directors, the stock (symbol HPQ) has remained virtually flat. Even after the September 22 announcement of a shakeup in top management -- including the ouster of board chairwoman Patricia Dunn -- the shares barely budged. The stock, which closed September 26 at $35.70, down a penny, has performed well lately. It has risen 17% since late July, and 25% over the past year.

Analysts seem to think HP's stock will continue to rise, scandal or no scandal. Louis Miscioscia, of Cowen Co., says investors' biggest concern about HP right now seems to be the possibility that chief executive Mark Hurd may be forced to resign. The Palo Alto, Cal.-based maker of computers, printers, cameras and other high-tech devices announced Friday that Hurd will take Dunn's place as chairman. "We believe the move to chairman is a significant sign that he was not extensively involved [in the eavesdropping], and we believe the likelihood of his departure is low," Miscioscia wrote Monday. He reiterated an "outperform" rating on the stock, adding that "the momentum HP has gained during the past 12 months will continue to carry the company forward."

Analyst Andy Neff of Bear Stearns also kept an "outperform" rating on HP. "Barring disclosure of a 'smoking gun' tying CEO Mark Hurd to indictable activities, our sense is that [Hewlett-Packard] is taking the right steps to get control of the leak scandal, conveying a strong sense of urgency," Neff says. His year-end 2006 price target for the stock is $49.

There is no doubt that the investigation will remain in the news, given that three people involved in HP's probe to uncover the source of media leaks have been subpoenaed to testify before Congress this week. Analysts acknowledge that HP's shares could still suffer in the short term. But both Merrill Lynch analyst Richard Farmer and Goldman Sachs analyst Laura Conigliaro say that drops in the stock price during the investigation could be buying opportunities. "Given what we know today, we believe little of the boardroom scandal ultimately will impact the intrinsic value of HP," Farmer says. "We believe Mark Hurd's statements, combined with our past impressions of his integrity, as well as HP's confidence in appointing him as chairman, make the risk of his departure remote."

HP's stock trades at 15 times analysts' estimated earnings of $2.48 per share for the fiscal year that ends in October 2007, according to Thomson First Call. That puts its price-earnings ratio on a par with the overall stock market.




You can get valuable updates like Stock Watch from Kiplinger sent directly to your e-mail. Simply enter your e-mail address and click "sign up."

More Sponsored Links


Advertisement

Market Update

Advertisement

Featured Videos From Kiplinger