The Inevitable Hewlett-Packard (NYSE:HPQ) Split


Just when the rumors of an ominous split are ripe in the market, Hewlett-Packard Company (NYSE:HPQ) released its Q4 earning report on Tuesday, just after the market had closed. The split is not expected to take place until the end of year 2015. This split will result in formation of Hewlett-Packard Enterprise and HP Inc. The stockholders will receive shares that are independent of tax.

The HP Inc. is expected to be chaired by Dion Weisler. The current executive vice-president of printing and PC commerce for HP (NYSE:HPQ) is expected to become the CEO. The current CEO of Hewlett-Packard (NYSE:HPQ), Meg Whitman will continue as CEO and President of Enterprise company. She will also chair the board for HP Inc. Hewlett-Packard (NYSE:HPQ)’s lead independent director will chair the Enterprise company. The annual revenues are projected at an approximate figure of $50 billion after the split.

The Q4 earnings for fiscal 2014 were reported at $1.06 per share and the revenue summed at $28.4 billion as opposed to $1.06 earnings per share and total revenue figure of $28.76 billion estimated by Thomson Reuters.

The first quarter guidance shared by the company ranged from $0.89 to $0.93 in per share earnings. The earnings per share are projected at $0.93 for the first quarter.

Hewlett-Packard (NYSE:HPQ) has placed its earnings per share at a margin of $3.83 to $4.03 against the estimate $3.73 for the fiscal 2015. The probable split and its timing will impact these figures quite significantly. All the estimates released by the company don’t seem to shadow the split. However, the last released figures reported $15.5 billion in gross capital and capital equivalents.

A year-over-year Q4 segment revenues are projected as follows:

  • A rise of 4% at $8.9 billion in Personal System category. The operating margins are projected at 4%
  • A 5% decline in printing, totaling at $5.7 billion. Operating margin is 18.1%
  • The Enterprise Group category down 4% at 7.3 billion. Operating margin is 14.8%
  • Serviced Enterprise down 7% at $5.5 billion. Operating margin is 6.8%
  • Software dip at 1% at $1.1 billion. Operating margin is 31.1%
  • The Financial HP services went down 1% at 906 million

In a statement, Whitman said that the management team has put maximum efforts in to ensure enhanced performance. She also emphasized on the company’s efforts to continue with the same vigor and zest in the future.

The Deutsche Bank has maintained purchase rate for Hewlett-Packard (NYSE:HPQ). The price targets, however have been placed at $45 from the previous $40, only a day prior to the release of earnings report.

Tuesday closed with Hewlett-Packard (NYSE:HPQ) shares excel 0.3% at $37.63. Before the market opened on Wednesday, the shares were being placed at a dip of 1% at $37.15. The agreed price target based on range of trading based on a 52 week observation is $40.34.with a market cap at $70 billion, the price target projection by Deutsche Bank is up at $45, whereas, the lowest price target, as per analysts’ projection is at $36.