HP Discover‎: The Biggest Takeaways

In a report published Thursday, Morgan Stanley analyst Katy L. Huberty maintained an Overweight rating on Hewlett-Packard Company HPQ. According to the Morgan Stanley report, "HP is evolving into a solutions company, with four pivotal areas of focus: hybrid infrastructure, security, Big Data, and workplace productivity." The separation is progressing on track and the management is confident that once the split I completed, the companies will be left with more efficient structures that will position the, for better long-term performance. According to Hewlett Packard's CEO, Meg Whitman, the company would have been able to post revenue growth for FY15 in the absence of Fx headwinds. The company's near-term focus in on executing the separation, although the CEO believes that there could be more opportunities for divestitures after the spin-off. "While a number of business areas, particularly servers, have been performing well, software remains an area of weakness, with shift from traditional licensing to a subscription model weighing on performance," Huberty said. The analyst believes that margin expansion, especially in the Enterprise Services segment, could drive value creation for Hewlett-Packard Enterprise. Also, the company has been working on implementing cost savings initiatives with the separation, such as an accelerated shift to lower-cost headcount. Hewlett-Packard does not plan to undertake any mid- or large-sized acquisitions in the near term, given the separation. However, the management acknowledged that there was a robust acquisition pipeline, with big data, cloud, mobile and security being key areas of investment for future M&A. "HP expects overall margin improvement on the back of incremental restructuring, but noted the easier work is done with future cuts coming in areas like Europe where severance costs are higher," Huberty added.