PCs and printers together made up 49 percent of HP’s 2012 sales, yet investors are getting those businesses for free based on the current market value, said Steven Milunovich, a New York-based analyst at UBS. He estimates the company could be worth more than $20 a share, or almost $60 billion including net debt, in pieces next year, according to an Oct. 8 report. He valued the PCs and printers groups at a combined $15.6 billion.
“HP is probably too big for anyone to manage,” he said in a phone interview. “They’re trying to be all things to all people.”
The sum of HP’s businesses implies a stock price of about $20 a share, according to ISI Group’s Brian Marshall. That’s 45 percent higher than yesterday. Still, he cautions that the company’s future sales and profit are so uncertain that it would be difficult to get to that level under the current structure, and a breakup may be too difficult for management to enact right now.
“It’s cheap for a reason,” Marshall, a San Francisco- based analyst for ISI, said in a phone interview. “It would be extremely difficult, if not impossible, to break up those divisions. HP has so much on its plate right now just trying to keep the ship afloat that they can’t possibly take on that complex of a transaction right now.”
Whitman has said the company reaps advantages by keeping its divisions together, including the strength of the Hewlett- Packard brand on PCs and advantages from buying chips and other components that can be used across computers, printers and servers. Whitman last year decided to keep the PC business, reversing Apotheker’s plan to get rid of it.
Still, analysts see a diminished business should the status quo be maintained. HP’s revenue in the fiscal year that ended in October was down 5.4 percent from 2011, the biggest annual slump since 2001. Analysts’ average estimates show a decline in each of the next three years, data compiled by Bloomberg show.
Whitman on Oct. 3 forecast less fiscal 2013 profit than analysts projected, saying the company would earn $3.40 to $3.60 a share, excluding some items. The average estimate was $4.16, data compiled by Bloomberg show.
HP’s greatest strengths at the moment are in its enterprise computing group, according to Jayson Noland, a San Francisco-based analyst at Robert W. Baird & Co. That unit had sales of $20.5 billion last year and supplies the servers, storage and networking gear that powers corporate data centers. The company is counting on products like its Project Moonshot systems, which let customers cram thousands of computing cartridges into a machine to solve Web serving and data-analysis problems.
“They have to show synergies across these divisions” and show corporate customers what the advantages are of buying PCs, printers, servers, storage and networking gear from one company, Noland said in a phone interview.
If not, “what’s the point of this all being under the same umbrella?” he said. “Then you need to break it apart.” The company wouldn’t likely sell divisions under “duress” and could wait until performance improves, Noland said.
HP probably hasn’t pursued a divestiture because it will be difficult to align the company’s asking price for its PC or printer business with what a buyer is willing to pay, said Shaw Wu, San Francisco-based analyst for Sterne Agee & Leach Inc. Even if a suitor were interested in the entire company, its size could be a deterrent, he said.
“You’ve got to have pretty deep pockets,” even though the shares have already fallen, Wu said in a phone interview.
Still, it behooves HP to act quickly and not be too discriminating when it comes to offer prices because the value of the pieces may continue eroding, he said.
“It may make sense to do it sooner than later,” Wu said. “There is a bit of an expiration date.”