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Hewlett-Packard Shares Plunged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Hewlett-Packard (NYSE: HPQ  ) dropped 23% in intraday trading today after issuing disappointing guidance and revealing plans to "transform" the business.

So what: Third fiscal quarter non-GAAP EPS of $1.10 rose a modest 2% year over year and beat the $1.09 consensus estimate. Revenue of $31.2 billion grew only 1% year over year, helped by currency exchange rates.

Now what: Fasten your seatbelt: It's complicated. Management retracted guidance for fiscal year 2014, which it issued just last March. For the current quarter the company expects non-GAAP EPS of $0.44 to $0.55, well below the $1.31 consensus estimate. To transform the company, it's killing the tablet and smartphone hardware business it bought in July 2010 and hoping to salvage the webOS software that came with the $1.2 billion purchase. It's considering selling or spinning out its PC business and agreed to pay about $11 billion to buy software maker Autonomy. The transformation is expected to take a number of quarters and pressure earnings during that time. At a P/E ratio of 5.9 times, the stock may appear to be a great value, but it could well be a value trap.

Interested in more info on HP? Add it to your watchlist by clicking here.

Fool contributor Cindy Johnson does not own shares of any company named above. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On August 19, 2011, at 1:56 PM, Quaker08 wrote:

    Although HPQ's earnings guidance was abysmal, I think there is value in the shares at these prices. Additionally, I find it interesting that the market reacted so negatively to the PC spin-off situation. If this news broke one month ago, do you think the reaction would be the same? I seem to remember the market cheering any and all spinoffs in recent months(MRO, COP, KFT). I think people are looking through their worst case scenario glasses right now.

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10/26/2016 4:02 PM
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