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Technology Stocks : Hewlett-Packard (HPQ) -- Ignore unavailable to you. Want to Upgrade?

To: Lynn who wrote (4022)	1/5/2007 3:33:40 PM
From: Satish C. Shah	Respond to of 4345

I downloaded it from here on my dial up modem connection. Took about 30 minutes. Very interesting read. Thanks. smithbarney.com

To: Lynn who wrote (4022)	1/7/2007 2:11:45 PM
From: Don Hand	Respond to of 4345

Hewlett-Packard is our Top Pick based on the following: The Hewlett-Packard Story _ Execution and predictability have improved significantly since Mark Hurd became CEO and hired several new senior level executives in software, PCs, and IT. Improved performance is boosting employee morale. _ Mr. Hurd and his team remain extremely focused on costs. We expect another $2.5 billion-plus in cost reductions during the coming two to three years in IT, real estate, indirect procurement, services delivery, and supply chain. A portion of these savings will be reinvested in sales and channel programs, but a significant amount will fall to the bottom line. _ Hewlett-Packard is making very prudent investments to support future growth. The company is hiring 1,000 new salespeople in commercial printing and enterprise (hardware, software, and services) and intends to hire additional salespeople as costs decline. The company’s go-to-market investments are focused on high-growth segments such as digital commercial printing, copier replacement, photo kiosks/minilabs, managed print services, X86 servers, storage, management software, outsourcing, and certain portions of the consulting market. _ Hewlett-Packard’s product positioning looks to be very competitive as we enter 2007. The company enjoys clear technology, scale, brand, and distribution leadership in inkjet printing (35%–40% of total operating income). The company is a technology leader in the blade server and management software markets and is now considered a tier one provider of IT outsourcing services. _ With $7–$8 billion in free cash flow during fiscal 2007, we expect Hewlett-Packard to aggressively repurchase shares and pursue additional strategic acquisitions. Share repurchase should reduce share count because there are significantly fewer options in the money at current prices and options grants are being reduced. Acquisitions are likely to be accretive in year one because they will be funded with cash. _ Valuation seems inexpensive for a company with 4%– 6% revenue growth and 11%–26% EPS growth expected during the next two years. Catalyst Consistent earnings upside should be the most significant catalyst. Our current fiscal 2007 non-GAAP EPS estimate of $2.79 is well above consensus of $2.55 and management guidance of $2.48–$2.53. Our current fiscal 2008 non-GAAP EPS estimate of $3.11 is well above consensus of $2.90 and management guidance of $2.78–$2.98. The Edge Our current estimates are well above consensus and guidance primarily due to assumptions regarding cost reductions. However, our bottom-up analysis of costreduction opportunities suggests that even our aboveconsensus $2.5 billion-plus estimate could prove to be conservative. Bottom Line While Hewlett-Packard shares have risen about 44% during the past year, we believe they offer more percentage upside potential than any other hardware company during the coming year. Our target price of $48 suggests an expected total return of 17.3%, including the expected dividend yield.