August 19, 2011 / 10:07 AM / 6 years ago

Baird cuts HP, says transformation proving costly

(Reuters) - Hewlett-Packard Co (HPQ.N), which may spin off the world's largest PC business, is no longer a "safe haven" stock, said Robert W. Baird, which downgraded the stock to "neutral" on weak results and the company's decision to overhaul its portfolio.

As part of a series of moves away from the consumer market, the iconic company associated with the birth of Silicon Valley plans to kill its new tablet and buy British software company Autonomy Corp AUTN.L for $11.7 billion.

"We are directionally positive on the shift to high-growth, high-margin business but this transformation is proving expensive, protracted and includes significant integration risk," analysts, including Jayson Noland, wrote in a note to clients.

In the second quarter, HP cut its profit forecast for the year, saying it needs to focus on consulting, cloud computing and higher-margin businesses and move away from less-profitable endeavors like maintenance.

Baird analysts, who previously rated HP "outperform," cut their price target on the stock to $30 from $51.

They expect HP to lose market share to Dell Inc DELL.O and others as the decision-making process to spin off the PC division would take 12 to 18 months.

The PC business has been on a downtrend, especially in the consumer sector where the booming smartphone and tablet market has hammered demand for traditional plug-in PCs. And HP's PC business has been struggling with low growth and single-digit margins.

Shares of HP closed at $29.48 on Thursday on the New York Stock Exchange.

Reporting by Rachel Chitra in Bangalore; Editing by Don Sebastian

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