Morgan Stanley Likes Hewlett-Packard's Risk/Reward Profile

Following

fourth-quarter results on Tuesday, Katy Huberty commented in a note on Wednesday that the risk/reward profile is favorable. According to Huberty, Hewlett-Packard demonstrated a “much awaited” margin improvement as margins improved at least 30 basis points in every segment from a year ago. The company's Services margin increased 240 basis points from a year ago. Huberty adds that the company's free cash flow remains “strong.” The reported $1.9 billion free cash flow in the quarter exceeded the $1.6 billion the analyst expected. The company's management stated that it expects to accelerate its share repurchase in the first quarter and return at least 50 percent of free cash flow to investors in fiscal 2015. The analyst notes that the company is “biased” to share repurchases in the near-term while the company will benefit from continued cost-cutting and mix related margin improvements. Huberty notes that under a “bull case” scenario, shares could be worth up to $49 per share. The analyst does however state that more transparency related to the split of corporate level costs and incremental expenses post separation is needed. As such, shares were reiterated with an Overweight rating and $40 price target.