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A Technical Look At Hewlett-Packard Company

A Technical Look At Hewlett-Packard Company
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News came out over the weekend that Hewlett-Packard Company (NYSE: HPQ) will be splitting the company into two, one being the PC and printer operation and the other being the corporate hardware and services business. That news will no doubt lift Hewlett-Packard on Monday, but exactly how high?

Here is a look at the pre-news profile for Hewlett-Packard.

What The Bulls See

  • Cheap valuation metrics: a seemingly cheap PE ratio of around 10 based on 2015 estimates, a price-to-book of 2.26, a price-to-sales of only 0.57 and an enterprise value of $71.05 billion that easily trumps the market capitalization of $65.69 billion.
  • The company is profitable with 4.54 percent net profit margins and positive levered free cash flow of $9.61 billion annually.
  • A fairly clean balance sheet: a current ratio of 1.16, a debt-to-equity ratio of 68.62 percent and cash reserves of $14.47 billion that partially offsets total debt of $19.83 billion.

Related Link: HP Stream Vs. Chromebook: Can Hewlett-Packard Company Compete With Google Inc?

What The Bears See

  • The PE of 10 is expensive when compared with flat estimated revenue growth and estimated EPS growth of only 5.9 percent.
  • A pre-news price chart that said Hewlett-Packard was in a bear market bounce that started on Friday and downside targets near $32.

Technical Take

Technicians note that Hewlett-Packard may have set a short-term bottom at $34.28 on Thursday and a normal technical bounce had commenced on Friday and was set to continue on Monday; that was before the news of breaking up the company over the weekend.

The pre-news estimated ceiling or resistance level that technicians had in mind was $36.25 (or the bottom of wave “i” on the chart). Above that price, the next level of resistance came in at the wave “ii” peak at $37.28. If things get really out of control on the upside as a result of the news, Hewlett-Packard trade all the way up to the upper edge of the long-term uptrend channel at or slightly above $40. Support for Hewlett-Packard comes in at the low from last week at $33.93, with the long-term uptrend line at $32 backing that up.

With the news out over the weekend, investors and traders will have to do a full re-evaluation of their stance towards Hewlett-packard once the dust settles on Monday.

In Monday's pre-market session, shares were up about 5 percent at $36.90.

Stock chart: 
Stock chart

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