Citi: Hewlett Packard Shares Remain Significantly Undervalued

Citi reiterates a Buy rating and $65 target on Hewlett Packard HPQ shares following Monday's Investor Summit with CEO Leo Apotheker. Citi continues to believe that HPQ possesses an underappreciated set of assets capable of delivering sustained double-digit EPS growth and strong cash flow for the next five years. This growth is currently priced at just 8X our FTM non-GAAP EPS estimate, a 35% P/E discount to IBM despite similar growth and even a 30% P/E discount to CSCO despite superior growth for several years.

CEO Leo Apotheker outlined a strategy predicated on providing secure Cloud infrastructure and services, the devices necessary to access these services and the software to tie it all together. While HP has not couched its strategy in precisely these terms before today, this does not represent a meaningful change in strategy.

Apotheker clearly dismissed the idea of a major divestiture or break-up of the company. He also dismissed the idea of a large acquisition in applications, or any software acquisition that involved the purchase of “legacy” technologies.

HPW closed Monday at $41.49