HP shares fall on Hurd shocker

NEW YORK Mon Aug 9, 2010 7:30pm EDT

Related Video

Video

HP CEO exit sparks concern

Mon, Aug 9 2010

Related Topics

NEW YORK (Reuters) - Hewlett-Packard Co's (HPQ.N) stock looks like a bargain, analysts said, but uncertainty may limit its gains until the company finds a CEO to replace Mark Hurd, who quit over a scandal with a female contractor.

HP's share price, which had doubled since Hurd took the helm five years ago, fell 8 percent to close at $42.60 on Monday on the New York Stock Exchange.

The company said last Friday that an investigation found that Hurd had falsified expense reports to conceal a relationship with a female contractor. It is searching for a new CEO while Chief Financial Officer Cathie Lesjak runs the company in the interim.

"We own Hewlett-Packard, and we do not see this changing our thesis, and so, depending on the extent and duration of the sell-off, this might be a good opportunity to add to the company," said Henry Smith, chief investment officer at Haverford Trust Co in Philadelphia.

"We're certainly not contemplating selling it, but rather perhaps adding to it," he said.

Most analysts encouraged investors to buy the shares, citing the company's sales outlook and solid operations.

Standard & Poor's equity analyst Tom Smith lowered his share price target to $54 from $58 and changed his rating to "buy" from "strong buy," saying he was optimistic about the company's prospects and thinks the shares are a good bet.

"Fundamentally, as an investor, you're buying into a company that's making money at a certain pace, and that pace seems to be intact," Smith said.

Almost overlooked in HP's Friday statement about Hurd's resignation was the company's decision to raise its full year profit forecast to $4.49-$4.51 a share, above Wall Street's expectations at the time. It also raised its revenue forecast.

Still, Smith said, "We have some uncertainty about management that we didn't have before... There's the question, what if there's more to this story? And what if they somehow pick a bummer?"

Most analysts said that HP shares were well valued before Friday's news, and looked more so after the sell-off. Based on the average expectation for 2010 earnings, HP closed Monday at about 9.1 times expected 2010 earnings.

The key question was whether Hurd's successor could lead HP against competitors like International Business Machines Corp (IBM.N), Apple Inc (AAPL.O) and Cisco Systems Inc (CSCO.O).

"Many senior executives fail. So you don't know whether someone is going to be good in the seat until they're in the seat for six to 12, sometimes 24 months ... So that's the risk," said Louis Miscioscia, an analyst at Collins Stewart.

HP is largely viewed as a relative safe haven within tech, and a lot of that is due to Mark Hurd and his track record, said David Dillon, a portfolio manager at HighMark Capital Management, which owns HP shares.

"However, his sudden departure will create a lot of uncertainty," he said.

Some investors saw the succession as an opportunity for HP to pursue a new growth strategy.

"The board might use this as an opportunity to bring in more of a technology visionary to run the company," said Haverford's Smith.

The shares finished on Friday at $46.30. There was some confusion over the closing price, and electronic exchange Direct Edge said on Monday that it erroneously labeled after-hours trades as regular trades.

(Reporting by Ritsuko Ando, Caroline Valetkevitch and Gabriel Madway; Editing by Robert MacMillan)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (2)
tergen wrote:
A company that eliminates the reason for its success is a very suspect investment.

If what they’ve said is the extent of his transgressions…sell!sell!sell!

Aug 09, 2010 2:52pm EDT  --  Report as abuse
BluGrass wrote:
Regardless of what Mr. Hurd did — or didn’t do– with Ms. Fisher, the larger issue is HP’s corporate practice of hiring pornographic “actresses” to interact with major clients. This kind of low-life practice will never end well, and reflects atrocious judgment on the part of all those at HP who engaged in it. As long as HP hires porn stars as “marketing contractors” this type of shake-down will keep reoccurring. Shareholders should take note.

Aug 10, 2010 1:15am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.