Citi Says Buy Hewlett-Packard 'Into Break-Up'

In a report published Friday, Citi analyst Jim Suva stated that the bad news of Hewlett-Packard Company HPQ seems to be over and good news is expected at the company's investor day on September 15. Suva reiterated a Buy rating on Hewlett-Packard, while lowering the price target from $41 to $39.

Suva said the company's 3FQ results were "not as bad as feared," and is expected Hewlett-Packard to "neglect to provide compelling evidence of the urgency to buy the stock now."

According to the Citi report, investors should "buy the stock before the upcoming Sept 15 meeting and Nov 1 break-up." The 30 percent year-to-date decline in the share price offers an attractive buying opportunity, with "the bad news of break up costs, dis-synergy costs, and additional restructuring" now behind.

Related Link: Hewlett-Packard Posts Upbeat Q3 Profit, But Sales Drop

On the positive side, the company reiterated its free cash flow generation plans for 2015, with the 2FQ FCF likely to beat the estimates. Services margins are also expected to continue to rise from the year-ago levels, with the company targeting operating margins of 7-9 percent in the services segment.

In addition, the company's PC sales have continued to gain market share, according to industry data.

At the same time, "top line sales continue to disappoint due to FX & competition," Suva stated, adding that the Q4 EPS guidance was lower than the Street expected.

"HP commented on increased competition on printers and supplies due to FX and more aggressive Japan competition," the Citi report added. Enterprise margins have also declined to their lowest level in five years.