HP's Turn To Make A Run At 3Par

Analysts at Brean Murray reiterate their "buy" rating on Hewlett-Packard Co HPQ. The target price for HPQ is set to $50. According to Brean Murray, “Last week Dell had reached an agreement with 3Par to purchase its shares for $18/share or $1.15B. 3Par has storage virtualization technology for utility (“cloud” computing) architectures. If its proposal is accepted, HP expects the deal will be completed before the end of CY10 and will not have a meaningful financial impact to FY11 EPS. HP will provide its FY11 guidance (including deal accretion) at its Analyst Day on 9/28.” “HP’s offer is ~33% higher than Dell’s. According to HP’s proposal letter to 3Par, it seems that there was a prior offer from HP which was obviously below Dell’s $18/share bid. HP commented it has been looking at 3Par for some time….If we were to gauge accretion based on purely Street estimates for 3Par, we estimate the acquisition could be $0.00-$0.01 accretive to CY11 EPS using simply Street CY11 revenue of $269M and (we believe) operating margins of 4%. However, HP suggested it expected to scale 3Par revenue and margin in a fashion similar to that of 3Com (its networking acquisition) where it was able to gain access to a material number of Enterprise accounts,” the analysts mention. Brean Murray adds, “After the deal closes, we believe HP will still have ~$13.1B in cash after the Jul ’11 Q. We believe HP could become more aggressive on share repurchases with the stock at current levels (it has $4.9B left in its current buy-back authorization); in fact it did repurchase $2.6B of stock in the July Q vs. $1.8B in the Apr Q; shares were down 30M q/q (vs. down 21M in the Apr Q.) Importantly, HP provided Oct Q share count guidance of down 30M again Q/Q, and when questioned on the call seemed to suggest it is not opposed to becoming even more aggressive potentially, particularly given it doesn’t view access to capital as a constraint. HP also noted that its options overhang is now just 6%, so that more of the repurchase will fall to net share reduction.” More Analyst Ratings here