BofA/Merrill Lynch Says Buy Hewlett-Packard Turnaround

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Bank of America/Merrill Lynch is giving a late-afternoon assessment as a somewhat favorable endorsement of the management changes and also to the positive pre-announcement from Hewlett-Packard Co. (NYSE: HPQ) from earlier today. The firm sees the Enterprise Services chief’s departure as a negative, but it believes that the restructuring seems to be on track despite many moving parts and risks.

One thing that the firm said is that the earnings upside projected today was likely from margin improvement rather than revenues.  It even noted improved HDDs & printing supplies inventory, efficiency gains and cost savings from restructuring. What BofA did say is that the firm expects that a similar trend could be in place in the fourth quarter and that it could further raise its targets.

BofA’s investment thesis is as follows: “We view HP as a large cap, defensive investment, owing to a high portion of recurring sales, significant cost cutting levers, strong balance sheet, top-notch management, and potential share gains. The EDS acquisition should provide revenue and cost synergy opportunities, outside of those opportunities within core-HP. Longer term, we view HP as a consolidator of share in the IT hardware market, specifically in PCs, services, and software, while maintaining its dominant share in printing.”

At the end of the call, the firm is reiterating ist Buy rating with a target price of $27.00 for HP shares. We would note that the price target here is only just a tad above the consensus price target of $26.50.

So much for Jim Chanos shorting the stock as this is the best performer this week of our 6 Cheapest DJIA Components.

JON C. OGG