2 Stocks to Watch on Friday: Hewlett-Packard and Groupon

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

U.S. stocks opened higher today, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) up 0.25% and 0.30%, respectively, at 10:15 a.m. EST. Investors are watching two technology stocks that are making big moves on earnings news: "classic tech" turnaround Hewlett-Packard (NYSE: HPQ  ) and upstart turnaround Groupon (NASDAQ: GRPN  ) .

I'll admit it: I was a naysayer with regard to the odds of CEO Meg Whitman implementing a successful turnaround at HP, one of Silicon Valley's iconic companies. Nevertheless, two and a half years into the job Whitman's efforts appear to be gaining traction, as yesterday afternoon's release of the company's fiscal first-quarter results demonstrate.

Hewlett-Packard isn't out of the woods, to be sure: by way of example, revenue shrank 1% year on year to $28.2 billion (although it would have been flat on a constant currency basis). Still, that was better than analysts had projected and adjusted earnings per share rose 10% year on year to $0.90, beating the $0.84 consensus estimate. HP has now beaten analysts' estimates for revenue and EPS in four of the past five quarters. Finally, the company raised its EPS guidance range for 2014 to $3.60-$3.75 , bringing it in line with the $3.67 consensus estimate.

Whitman appears to have stabilized the business and the market has responded enthusiastically -- shares have gained 77% over the past 12 months. However, the next step may prove trickier still, as the chief executive seeks to produce growth from this amalgam of different businesses. I'm not usually a fan of turnaround investing, as it typically requires a significant leap of faith (particularly in the technology industry), but, at 8.2 times next 12 months' EPS estimate, there may yet be more upside left in HP shares. Still, the stock is down 1.9% at 10:15 a.m. EST.

On the other hand, I'm nowhere close to altering my opinion of online deal provider Groupon, which has essentially been in turnaround mode ever since its November 2011 initial public offering. (I'd argue it never deserved to join the public markets in the first place.)

Like HP, Groupon announced revenue and EPS that beat consensus estimates yesterday afternoon. Unlike HP, it provided a guidance range on EBITDA (earnings before interest, taxes, depreciation, and amortization -- a measure of cash flow) for the first quarter of $20 million-$40 million that fell way short of analysts' $96 million estimate. Groupon blamed this on higher marketing costs and a $20 million impact of two acquisitions the company made last month. In response, the market is brutalizing the stock this morning, taking it down 15.5% at 10:15 a.m. EST. I can't blame investors: Groupon is a poor-quality business in search of itself and the stock doesn't even make sense as a deep value speculation.

Better than turnaround investing: here's the 1 stock you must own in 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2848585, ~/Articles/ArticleHandler.aspx, 8/29/2014 6:33:22 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement