Hewlett Packard Surges on Credit Suisse Upgrade and Breakup News

Hewlett Packard Company HPQ shares surged on news of a breakup as Credit Suisse upgraded the shares from Neutral to Outperform with a change in Price Target from $35 to $45.

Analysts led by Kulbinder Garcha reported that “HP is splitting its PSG/IPG businesses (48 percent of revenues and 43 percent of OP income), to be called HP Inc., from its Enterprise business, to be called HP Enterprise. 

The split is “expected to be a tax-free distribution of shares, with Meg Whitman becoming chairman of HP Inc. and CEO of HP Enterprise, Dion Weisler CEO of HP Inc., and Pat Russo HP Enterprise Chairman.”

Garcha felt that with “stable operations, scope for more predictable cash distribution, conservative guidance and continued steep undervaluation” the firm could raise its rating.

While the break-up was seen as a positive development, Garcha’s team harbors “concerns for the Enterprise business given legacy exposure, negative impact from the cloud and weak position across the Enterprise stack. 

Garcha also noted that “HP Inc.'s shrinking top line with secular pressure from smartphones and tablets. While PC and Printing is run as mature asset, the Enterprise portion still need a degree of transformation - possibly through M&A” which was reflected in the report’s valuation.

Hewlett Packard Company closed at $36.87 Monday, up 4.74 percent.