Here's Why Hewlett-Packard Company Shares Will Fly to $40

Does this analyst make a good case? Or is it just more noise from Wall Street?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Apr 10, 2014 at 10:10AM
Technology and Telecom

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Hewlett-Packard Company (NYSE:HPQ) climbed 3% this morning after Deutsche Bank initiated coverage on the IT services giant with a buy rating.

So what: Along with the bullish call, analyst Sherri Scribner planted a price target of $40 on the stock, representing about 22% worth of upside to yesterday's close. So while contrarians might be turned off by HP's sharp climb over the past six months, Scribner's call could reflect a strengthening sense on Wall Street that its turnaround potential still isn't being fully appreciated by investors.

Now what: According to Deutsche, HP's risk/reward trade-off is rather attractive at this point. "While the company does have a higher mix of declining segments like PCs and printers, we believe HP's IT hardware portfolio is well positioned for the next phase of IT, with strength in converged infrastructure and Big Data," said Scribner. "Given its strong product portfolio, we believe shares should trade more in line with historical averages and in line with peer IBM who has similar growth rates." Of course, given HP's still-hefty debt load and red-hot stock price -- now up about 75% from its 52-week lows -- conservative Fools might want to wait for a wider margin of safety before betting on that optimism.