HP finds two businesses better than one

Over the next twelve months a clearer picture of how HP’s separation will work should give investors and traders a better idea of fair market values. 

A HP sign
Source: Bloomberg

On Tuesday 25 November Hewlett-Packard will report its fourth-quarter figures. The adjusted earnings per share is expected to improve from $0.89 up to $1.055, and sales are also forecast to improve from $27.585 billion up to $28.76 billion. These figures should contribute to the company’s pre-tax profits jumping from $1.313 billion up to $2.56 billion.

It has taken a couple of months for Hewlett-Packard to get back on track following the selloff in its shares a week after its third-quarter figures. Sitting just below the $37.50 level, the shares are up 34.25% from the start of the year and are now up 48.45% year-on-year.

Hewlett-Packard has announced that it is going to break up the company into two parts. One part HP Inc covering printing and personal computers, while the second part, Hewlett-Packard Enterprise, will focus on business and cloud computing. This split has only just been announced and will take until the end of 2015 to be completed, but since Meg Whitman took over in 2011 large changes have been expected. This change has come about in an effort to make both companies more agile and able to focus on their specific business models. Part of this has been due to the unwieldy company that previously existed, but also because of the shifting consumer demands of the computer and technology environment.

As this separation becomes increasingly clearer over the course of 2015, the share price will react accordingly. The initial market reaction is that, currently, the sum is in fact less than its parts and synergies that might previously exist are no longer pertinent.

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