Arik Hesseldahl

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Apotheker’s Keynote: The Reviews From Analysts Are Mixed

Analysts are beginning to chime in on the keynote address by Hewlett-Packard CEO Léo Apotheker in San Francisco yesterday, and their responses are all over the map.

Richard Gardner of Citigroup is in the bullish camp. In a note to clients today, he said that HP shares “remain significantly undervalued” and reiterated a $65 price target. HP, he wrote, has an “under-appreciated set of assets” that should help deliver strong earnings growth over the next five years, observing that it trades at a 35 percent price-to-earnings discount versus IBM, and a 30 percent P/E discount when compared to Cisco Systems.

Chris Whitmore of Deutsche Bank was much more muted. In a research note to clients issued today, he said that HP is fairly valued based on the risks associated with execution on the strategy combined with an anticipated increase in spending, while revenue from such businesses as PCs and printers is growing more slowly. Nor was he impressed by CFO Cathie Lesjack’s announcement that HP will boost its quarterly dividend, and that it expects to increase its per-share earnings by $7 between now and 2014. “In aggregate, we believe the long term EPS target and the dividend increase suggests no large transformative acquisitions in the near-term.” Finally, he doesn’t seem to expect much from HP’s plans for webOS, the mobile operating system it acquired with Palm last year. “While we believe the webOS offering has potential, it is late to market (Android and iOS have 12-18 month lead) and HP risks alienating Microsoft which is a key partner. Finally, HP has yet to ship a Touchpad into a market that is showing enormous demand for the recently refreshed iPad 2.” Apple has, he said, “an insurmountable lead” in the market for tablets and smartphones. He rates HP stock a “hold” with a price target of $42.

Robert Cihra of Caris and Company said he found Apotheker’s comments to be “relatively familiar.” Talking about leveraging scale to approach the cloud computing business, as Apotheker did yesterday, is “similar to those same strategic opportunities being targeted by virtually every HPQ competitor.” He conceded that, while consumer technology is leaving an indelible mark on corporate IT–that trend often described as “the consumerization of IT”–HP is in a unique position, given its reach in both areas. He’s just not convinced that HP knows what to do to take advantage of that position.

“HP stock certainly looks cheap if it can achieve targeted numbers, but we see it getting tougher for the company to navigate its massive IT superstore (after all this is HP + Compaq + EDS) while also keeping pace with competitors we consider more innovative and defensible, including Apple, EMC and IBM.”