The Best of Both Worlds

03/04/2010 1:01 pm EST

Focus: STOCKS

Charles Carlson

Editor, DRIP Investor

Charles B. Carlson, editor of DRIP Investor, takes the measure of Hewlett-Packard and finds outstanding growth potential at a value price. 

The technology sector continues to put up good earnings, and Hewlett-Packard (NYSE: HPQ) has maintained the sector’s operating momentum. The company beat earnings expectations in the latest quarter, and business should strengthen in upcoming quarters as the economic rebound continues.

The stock is trading [near] its 52-week high of nearly $53, and a strong breakout above that level would be especially bullish. Despite the stock’s gains, these shares trade at a reasonable 11x fiscal 2010 earnings estimate. The stock scores a 92 out of a possible 100 in our Quadrix® stock-rating system, [making it a good buy] at current prices.

Hewlett-Packard calls itself “the world largest technology company.” The company’s business portfolio includes printing, personal computing, software, services, and information technology infrastructure.

The company put up solid numbers in the fiscal first quarter ended January. Revenues grew an impressive 8% in the quarter, driven by gains in virtually every geographic region. Growth was especially impressive in the BRIC countries (Brazil, Russia, India, and China), with revenue increasing 41% over the year-earlier period. Overall, revenue outside the US accounted for roughly two-thirds of company sales, with BRIC countries accounting for 10% of total revenue.

On the profit side, per-share earnings jumped 18% to $1.10, [four cents] better than the consensus earnings estimate. For the second quarter of fiscal 2010, HP expects revenue of approximately $29.4 billion to $29.7 billion, and per-share profits in the range of $1.03 to $1.05. The consensus earnings estimate for the quarter is $1.05 per share.

The company estimates full-year fiscal 2010 revenue will be approximately $121.5 billion to $122.5 billion, up from its previous estimate of $118 billion to $119 billion. HP expects full-year fiscal 2010 earnings per share to be in the range of $4.37 to $4.44, higher than the company’s previous estimate of $4.25 to $4.35.

The consensus analysts’ estimate is $4.43 per share. These estimates for both the second quarter and full-year fiscal 2010 do not reflect the potential impact of the proposed acquisition of 3Com (Nasdaq: COMS) that HP announced on November 11, 2009.

Hewlett-Packard offers that rare combination of growth and value. Revenue and earnings should continue to grow at rates that exceed that of the economy and [the] average company. Yet, investors can buy that growth at value-type prices. The stock represents a core holding for either growth or value investors.

Please note that Hewlett-Packard’s dividend reinvestment plan requires ownership of at least ten shares—and the shares must be registered in the name of the investor—in order to enroll in the plan. (HP shares closed Wednesday at around $51—Editor.)

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