Hewlett-Packard Has A 'Short, Bumpy Road' Until The November Split

In a report published Monday, Pacific Crest analyst Brent Bracelin said that Hewlett-Packard Company HPQ shares are likely to remain range bound between $33 and $36, with limited upside, at least till the formal split that is scheduled for November 1. Analyst Brent Bracelin mentioned that the HP Discover user event and analyst sessions held in Las Vegas "reinforced" the view that Hewlett-Packard shares would have limited upside till the split because of "sizable dis-synergy and separation costs, the potential risk of channel disruptions as it switches IT systems on August 1, unpredictable currency fluctuations with ~35% EMEA exposure, and mixed industry fundamentals across PCs and storage." In the report Pacific Crest noted, "The process of splitting up a 250,000 employee organization with revenue in excess of $100 billion across 170 countries has not been easy…Separation costs are expected to reach $1.8 billion, including roughly $400 million in dis-synergy expenses. Exacerbating cash flows will be another $2 billion restructuring within HP Services as it transforms its own model." Bracelin believes that M&A before November 1 would be unlikely, with the Hewlett-Packard team focusing on operating HP Enterprise and HP Inc. independently by August 1. Bracelin added, however, that M&A after the formal split is "highly likely." Since HP Inc. is expected to take on "as much of the debt burden as possible while maintaining investment-grade ratings," this could "position HP Enterprise with adequate firepower to begin pursuing strategic enterprise assets."