UPDATE: Bank of America Merrill Lynch Upgrades Hewlett-Packard

In a report published Thursday, Bank of America Merrill Lynch analyst Scott Craig upgraded Hewlett-Packard HPQ to Buy from Neutral, raising its price objective to $39.00 from $29.00. According to the report, the analysts believe that the story that held in 2013 will continue, creating déjà vu in 2014, and driving the stock higher. “Our Buy rating is predicated on (1) closing the P/E multiple gap on peers (LXK, IBM, STX, WDC, XRX; BRCD) (2) stable-to-slightly increasing EPS revisions, as the turnaround/restructuring progresses; (3) strong free cash flow (FCF) generation (15% yield); (4) commitment to shareholder returns of 50% of FCF in dividend and buyback; and (5) poor Street/investor sentiment,” the report noted. “While we acknowledge secular growth challenges, we are impressed with the transformation progress and believe the risk/reward is favorable at 7.8x our C2014E EPS.” Some risks included change in cash usage priorities from shareholder returns to large, potentially value-destroying M&A and meaningful downturn in the economy. HPQ closed Wednesday at $28.84.