H-P Naysayers Are Now Being Heard

Kind of a disappointing reaction from the Street Friday to Hewlett-Packard’s (HPQ) fiscal fourth quarter earnings report Thursday night. After all, the company not only beat expectations for the quarter; it also provided guidance for the fiscal first quarter and for all of fiscal 2007 that topped Street expectations.

And most of the commentary Friday morning from the analysts was gushy and moony-eyed. Here, look:

• Robert Semple, Credit Suisse: The beat rolls on, raising estimates…Reiterate Outperform.
• Daniel Renouard, Robert W. Baird: Another solid quarter…above-consensus guidance…strong free cash flow…we continue to recommend the shares.
• Richard Gardner, Citigroup: Firing on all cylinders…We expect significant upside to management guidance and consensus…Reiterate Buy.
• Benjamin Reitzes, UBS: Another impressive quarter…Raising estimates…Raising price target to $51.
• Louis Miscioscia, Cowen: Another very solid quarter, almost every measure showed improvement, many hitting annual or multi-year highs…we believe the stock will outperform the market by 10%-15% in the next 12 months.

See what I mean? People still simply love this stock. You have to search pretty hard to find the dissenting voices. But it seems like the naysayers are being heard. And what they’re saying, basically, is that while HP’s cost-cutting moves have paid off big time, they are now largely complete. To keep profits growing, HP is going to have generate more organic growth at the top line. And that is not going to be that easy.

• Jesse Tortora, Prudential: While we believe HP will continue to execute, we are concerned that changes in the competitive landscape across HP’s major segments set the stage for slowing earnings growth over the next several quarters. We think operating margins have have peaked out at 9% this quarter…We are increasing our price target by $2 to $33, but are maintaining our Underweight rating on the stock.
• Charlie Wolf, Needham: This is one story we totally missed. Our key mistake was to assume that the cost-cutting initiatives of Mark Hurd…would not flow to the bottom line but be eaten up through price reductions. We were obviously wrong. At this point, however, we believe we are approaching the time when HP’s earnings growth will asymptomatically fall to the revenue growth rate…Maintaining our Hold rating.
  

On Friday, the bears were smaller in number, but carried the day.

See: Hewlett-Packard F4Q06 (Qtr End 10/31/06) Earnings Call Transcript