- UBS believes Hewlett-Packard (NYSE:HPQ) is set to outline new operating margin targets in the 9% range at its Dec. 12th analyst meeting in NY. As a result, the firm believes investor psychology will start moving toward a $3.00 EPS figure for calendar 08, which they believe could drive shares through the mid $40's applying a 15-17x multiple (in line with the market/modest premium).
Checks suggest HP momentum continues in PCs, printers & in the enterprise, making operating margin targets of 7.5-8.0% look too conservative for FY07. They believe HP will update those targets on its 4Q06 earnings call, perhaps making firm's FY07 estimate of $2.50 look conservative.
For FY07 their estimate of $2.50 is based on 6% revenue growth to $96.4B & operating margin of 8.6% (factors in the Mercury Interactive acquisition). Given firm's view that margins can top 9% long-term & revenue should continue to grow in the mid-single digits, they are initiating an FY08 estimate of $2.85 based on 5% growth to $100.8B & operating margin of 9.1%.
UBS is adjusting their price target to $50 (was $44) still based on 17-18x forward EPS but now based on new FY08 estimate of $2.85. They believe that HP's faster growth & higher margins warrant a premium to Dell.
Notablecalls: Interesting call from UBS. I'd keep this one on a tight leash (stop) and watch the volume. Lately, I was seen several high profile calls like this one fail miserably in the s-t. If the vol jumps and there is no move in the price, get out fast or even take the other side of the trade.
Checks suggest HP momentum continues in PCs, printers & in the enterprise, making operating margin targets of 7.5-8.0% look too conservative for FY07. They believe HP will update those targets on its 4Q06 earnings call, perhaps making firm's FY07 estimate of $2.50 look conservative.
For FY07 their estimate of $2.50 is based on 6% revenue growth to $96.4B & operating margin of 8.6% (factors in the Mercury Interactive acquisition). Given firm's view that margins can top 9% long-term & revenue should continue to grow in the mid-single digits, they are initiating an FY08 estimate of $2.85 based on 5% growth to $100.8B & operating margin of 9.1%.
UBS is adjusting their price target to $50 (was $44) still based on 17-18x forward EPS but now based on new FY08 estimate of $2.85. They believe that HP's faster growth & higher margins warrant a premium to Dell.
Notablecalls: Interesting call from UBS. I'd keep this one on a tight leash (stop) and watch the volume. Lately, I was seen several high profile calls like this one fail miserably in the s-t. If the vol jumps and there is no move in the price, get out fast or even take the other side of the trade.
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