The Future of Hewett-Packard (HPQ)?

Mark Hurd of Hewlett-Packard (HPQ) On CNBC Monday, I shared my slightly positive sentiment towards Hewlett-Packard HPQ stock in the wake of CEO Mark Hurd’s resignation. Granted, HP’s stock nearly doubled while Hurd was at the helm, but I am a firm believer that it was not Hurd and Hurd alone who caused this. The hardworking men and women of the company and the creative minds of the developers, marketing staff, design teams, and management (among many others) most likely played a major role in the firm’s success.

While Hurd was instrumental in several tactical acquisitions and I am sure had a long-term vision for the company to follow, I am also confident this vision has been shared not only with the board, but with other levels of management within the company. Any such vision should now be carried out even in Hurd’s absence. One issue I see with his departure would be the potential for a “too many cooks in the kitchen” type scenario, where everyone’s ideas pull the company in different directions, creating possibly inefficient situations.

Of course the recent deals that HPQ has put together (PALM, 3Com and EDS) are going to require some guidance to make them work, but I have confidence that a brilliant CEO – at a much lower price tag, by the way – should be able to not only integrate, but improve the overall business. HPQ still has momentum and finds its most direct competition from IBM. HP and IBM have been in competition for some time, with HP eclipsing IBM in revenue in 2006 (by $0.3 billion) and growing ever since.

Then there are the controversies surrounding the HP board, from the 2006 pre-texting investigation regarding the leakage of HP’s long-term vision and strategy to the more recent extreme excessive spending habits outlined in detail here. Maybe the board could use a little shakeup and will face increased scrutiny following these issues, Hurd’s dismissal, and his subsequent replacement, which will most likely be someone internal.

The HP board will almost certainly spend less on compensation for its new CEO (Hurd’s total comp in 2008 was $43 million, which made him the fourth-highest paid CEO that year). They may also be able to curb some of the “extras” that could have been costing HP shareholders.

Is Hurd really worth $10.65 billion? That is the amount of market cap HP has given back since the announcement of his departure. This move has dropped the stock to 12 times trailing earnings and below its 20-, 50- and 200-day moving averages. Keep in mind that HPQ products have not stopped shipping and service contracts that are in place are not null and void now that he is gone. I don’t see Hurd’s role as equal to that of a Steve Jobs, for example, who takes a much more particular role in the design and marketing of the limited amount of products Apple produces.

As an investor, you may have to account for this event and perhaps discount the stock due to the loss of a “key man,” but at the same time you have to balance the negatives with the positives here when determining your outlook. The stock happens to find itself right above a key long-term support level at about the $41.00 price point. This may be a level to consider when evaluating what sort of position to take.

Additionally, HPQ is holding an analyst meeting on September 28. This could be a huge catalyst for the stock and an eye-opener for investors as we learn more about the company’s future intentions.

Photo Credit: Emma & Michael’s Excellent Adventures

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