Hewlett-Packard Company: What The Technician Thinks

Over the weekend, Hewlett-Packard Company HPQ announced it was splitting into two separate companies, HP, Inc. and HP Enterprise.

HP Inc. will encompass the personal computer business as well as its printer operations. HP Enterprise, meanwhile, will focus on its corporate hardware businesses.

The popular move of splitting a company up to “unlock” shareholder value sometimes leads to a market rally. Last week, for example, eBay Inc EBAY announced it was splitting into two separate companies with the spin-off of its PayPal unit.

Shares rose by as much as 7.5 percent on September 30, though the stock's price is now back down to the mid $54.00 range.

Ups And Downs

From a historical perspective, Hewlett-Packard is quite some distance from its all-time high made back in July 2000 at $68.09.

The company's ill-fated buy of Compaq Computer Corporation in September 2001, at the top of the PC market, plagued operations for years and was one the main factors that took the issue under $11.00 in July 2002.

Although it did recover to the $55.00 in April 2010, it swooned back to the $26.00 level in August 2011. The Mark Hurd-hiring debacle and some poorly researched acquisitions weighed heavily on the issue in a time when the broader bull market was raging.

Meg Whitman's Tactics

Fortunately for shareholders, Meg Whitman, the former eBay CEO, was hired in September 2011 to turn the company around. A rebound in share price was certainly not immediate, though, and HP stock declined once again to the $11.00 level in November 2012 before its dramatic recovery.

Whitman implemented cost-cutting measures and slashed debt, while making better use of the company's steady cash flow. As a result, shares have more than tripled in the time since.

Premarket Trading

Interestingly, the rally in the premarket session following the announcement found resistance at almost the exact same level as HP's September high, reaching $38.21.

After shares peaked around 7:00 AM, however, cooler heads prevailed and they barely opened above $37.10, the present high for the day.

It appears investors who regretted parting with HP stock near its multi-year highs do not want to miss out on another opportunity.

Looking Forward

Katy Huberty of Morgan Stanley recently calculated the company's break-up value scenarios, and pegged a point between $48.00 and $50.00 to be reasonable. Huberty also reiterated her overweight rating, and maintained a $40.00 price target for Hewlett-Packard as a whole. (The target is based on 10 times the company's FY 2015 EPS of $4.05.)

From a shorter-term technical perspective, Hewlett-Packard would need to reach the lower $35.00 range for bulls inclined to wait for a pullback to the stock's pre announcement price.

For those who seek continued upside, a move to and break-out above $38.25 may confirm another leg higher to its May 2011 peak of $41.74.

Disclosure: At the time of this writing, the author had no position in the equities mentioned in this report.