Elling argues now's the time to buy HP
Hewlett-Packard's (NYSE:HPQ - News) merger with Compaq may not be Carly's folly after all. Yeah, the combined company's first-half sales are down an estimated 15%, to $38 billion, and the stock since the April merger is off a third, to $12. Yet despite all the trash talk about the deal, Chief Executive Carleton Fiorina might be right in creating the new company.
Let's pretend the high-tech Goliath's much-maligned PCs, servers and storage products are worth nothing. That leaves the thriving printer business ($19 billion in sales the last 12 months, down 3%) and a pile of cash. Rival Lexmark, with $4.2 billion in sales for the 12 months trailing, has a $6 billion enterprise value, or 1.4 times sales. Using that multiple, HP's printer business is worth $27 billion. Add HP's $12.4 billion in cash, subtract the $5 billion in debt, and the stripped-down company value is only a little shy of its market cap.
In reality the rest of the company, with 75% of sales, is certainly worth something. Ergo, HP is undervalued, even though its 28 P/E seems high. Deutsche Bank analyst George Elling argues now's the time to buy HP. --Daniel KrugerMalone Math
biz.yahoo.com
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