With shares of Hewlett-Packard (NYSE:HPQ) trading around $26, is HPQ an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s MovementHewlett-Packard provides products, technologies, software, solutions, and services to individual consumers, small and medium businesses, and large enterprises worldwide. The company offers commercial notebooks and desktops, consumer notebooks, desktops, software, and services for the commercial and consumer markets. The services segment provides consulting, outsourcing, and technology services to infrastructure, applications, and business process domains. The diverse technological products and services offered by Hewlett-Packard make it a leading provider that sees increased demand through global expansion.
In May of 2012, Hewlett-Packard announced its intentions to restructure, projecting savings between $3.0 to $3.5 billion by the end of the 2014 fiscal year. The restructuring was to include job cuts for somewhere around 27,000 HP employees — 8 percent of its total workforce as of October 2011. "While some of these actions are difficult because they involve the loss of jobs, they are necessary to improve execution and to fund the long term health of the company," HP President and Chief Executive Officer, Meg Whitman, said in the company press release. Reuters reports that the tech company will be making 1,124 out of the total 27,000 job cuts in Britain. The Unite union told Reuters that HP has 15,000 to 20,000 employees in the country.
T = Technicals on the Stock Chart are StrongHewlett-Packard stock has performed well over the last several months. The stock is currently trading near highs for the year and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Hewlett-Packard is trading above its rising key averages, which signal neutral to bullish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Hewlett-Packard options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Hewlett-Packard options | 34.59% | 23% | 21% |
What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| December Options | Flat | Average |
| January Options | Flat | Average |
As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Decreasing Quarter-Over-QuarterRising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Hewlett-Packard’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Hewlett-Packard look like and more importantly, how did the markets like these numbers?
| 2013 Q3 | 2013 Q2 | 2013 Q1 | 2012 Q4 | |
| Earnings Growth (Y-O-Y) | -120.93% | -14.00% | -31.25% | -13.70% |
| Revenue Growth (Y-O-Y) | -2.77% | -8.23% | -10.14% | -5.58% |
| Earnings Reaction | 9.04% | -12.45% | 17.09% | 12.28% |
Hewlett-Packard has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Hewlett-Packard’s recent earnings announcements.
P = Excellent Relative Performance Versus Peers and SectorHow has Hewlett-Packard stock done relative to its peers, Dell (NASDAQ:DELL), IBM (NYSE:IBM), Apple (NASDAQ:AAPL), and sector?
| Hewlett-Packard | Dell | IBM | Apple | Sector | |
| Year-to-Date Return | 90.82% | 36.69% | -8.72% | 6.30% | 40.52% |
Hewlett-Packard has been a relative performance leader, year-to-date.
ConclusionHewlett-Packard is a software an technology bellwether that provides essential products and services to consumers and companies worldwide. The company announced its intentions to restructure, projecting savings between $3.0 to $3.5 billion by the end of the 2014 fiscal year. The stock has been moving higher in recent months and is now trading near highs. Over the last four quarters, earnings and revenues have been declining. However, investors are pleased with recent earnings announcements. Relative to its peers and sector, Hewlett-Packard has been a year-to-date performance leader. Look for Hewlett-Packard to OUTPERFORM.
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