In a research report issued today, BMO analyst Keith Bachman reiterated a Market Perform rating on Hewlett-Packard Company (NYSE:HPQ) and slightly increased the price target to $43 (from $42), based on modestly higher multiple assumptions. The new price target represents a potential upside of 12% from where the stock is currently trading.
Bachman wrote, “We think HP is a good defensive stock due to: 1) its attractive relative P/E valuation; 2) additional cost cuts that can help HP generate results that meet our FY2015 forecast despite meaningful FX headwinds; and 3) our view that the pending separation will help support the multiple. Further, we think the corporate action will help create shareholder value. One area we would like to hear more about, with specific numbers, is the incremental cost post-split to support the two organizations. HP has spent the past number of years reducing costs by leveraging shared services, and thus, we think costs will increase after the separation.”
Furthermore, “We believe that a risk for HP is the strength of the PC market. As long as the PC market unit volumes in 2015 are not worse than a decline of low- to mid-single digits, we think HP can gain enough share to meet our and buy-side expectations. While we are forecasting HP’s PC unit to contribute only 13% of operating income in FY2015, we nevertheless think the PC division is important for HP’s FCF generation capability and multiple.”
According to TipRanks.com, which tracks and ranks over 3,500 financial analysts to gauge the performance of their past recommendations, analyst Keith Bachman has a total average return of 27.8% and a 74.8% success rate. Bachman has a -3.9% average return when recommending HPQ, and is ranked #24 out of 3480 analysts.