Morgan Stanley Thinks Hewlett Packard Worth $48 to $50 per share

Following a Wall Street Journal report that Hewlett Packard HPQ was splitting into two distinct companies, Katy Huberty of Morgan Stanley calculated break-up value scenarios, with the $48-$50 per share being her most realistic range. She went on to reiterate an Overweight rating on HP and a $40 price target. Morgan Stanley makes the base case scenario below: Base $40 10x FY15e EPS of $4.05 / 10x FCF $4.07 Cash flow proves more sustainable than expected while margins slowly begin to expand led by a recovery in Enterprise Services. We assume more stable revenue trends and our estimates consider only limited flow through of restructuring savings. HP trades at the low end of IT Hardware peers until more sustainable revenue growth and/or more robust operating trends emerge. Risks to Achieving Price Target -IT spending weakness -Continued structural pressures in home printing, -Competitive environment intensifies as growth slows -Investments pressure margins if revenues disappoint -Non-linear improvement in EPS / FCF Shares of HPQ are higher by 5.66 percent in pre-market trade.