Analyze this

hpq stock hewlett packard
Sponsored By:

Patience, Meg Whitman? Sorry, We’re Fresh Out

Well, Meg Whitman held her first Hewlett-Packard (NYSE:HPQ) analyst meeting since taking the helm of the struggling tech company a year ago.

And she did nothing to diffuse questions about how (and how fast) she plans to turn the tech stock around. Instead, she called it a four- to five-year project for HP … and investors would be stupid to stick around that long.

I watched the speech via webcast, and as soon as HP CEO Meg Whitman took the stage I was struck by the fact that she immediately set the bar pretty low.

“We want you to understand the journey that we’re on to turn around one of the great tech franchise, and we want you to understand how that journey will express itself in its financials,” she said.

In other words: Be patient with us. Pretty please.

Well, sorry Meg. We’re all out of patience here after your stock has tanked 30% in 2012 and 67% in the past five years. We’re tired of watching HP make excuses and make cuts with no plans for growth. We don’t have any more patience to give you for this theoretical turnaround that is still in only the beginning phases, by your own admission.

So move on down the road to to the next fruit stand. We’re fresh out of patience here.

No Urgency at HP

Here’s a concrete example of that lack of patience: a  nearly 7% drop in the stock as Whitman barely finished her first few canned lines on stage.

And while a bit knee-jerk, it certainly was deserved. Because soon after HP proved bears right and actually cut its 2013 guidance.

This makes the whole event today even more of a head-scratcher. In her own words, Whitman wound up by staying that her entire first year was simply to “stabilize” the company. And in the year ahead, she will be focused on “diagnosing the problems and laying the foundation to fix them.”


HP whitman five year plan
Click to Enlarge

Take a look at this timeline and note that the word “recovery” is over 2014. Not inspiring.

For starters, I question the whole idea of “stability.” The fundamentals and recent HP earnings show continued declines. But don’t take my word for it — look at another slide from Meg Whitman in her own presentation.

HP whitman fundamentals slide
Click to Enlarge

Now on to “fix and rebuild.” Granted, turning around a monstrosity of a corporation like HP is no easy task. And there are a host of problems at this company — its bloated structure due to $40 billion in buyouts across the past several years, the tarnish on its brand thanks to el cheapo printers, the post-PC-age gutting hardware sales, the problem breaking into mobile. But two years?

How patient are investors supposed to be, and how likely is it that the promised turnaround will ever transpire after so many years of mismanagement and institutional shenanigans?

If HP is a bloated corporate behemoth, all the more reason to expedite a turnaround plan and do something spectacular — make your mark, Meg Whitman!

Being patient and enabling the inertia is not a solution. If you don’t demand change in a hurry, then nobody will.

Therein lies the trouble: In cases of companies bleeding cash and circling the drain, urgency is forced upon you. At HP it’s apparently voluntary.

Forget excuses about the macro picture in Europe — even if the continental economies were humming, the post-PC-age is gutting old-guard tech stocks. Dell (NASDAQ:DELL) reported ugly earnings in late August as a result. Intel (NASDAQ:INTC) guided down and was downgraded. This trend is not new, and it goes far beyond just recessions in Europe.

That’s to say nothing of HP’s supposed move into the crowded enterprise space, where companies like Cisco (NASDAQ:CSCO) and Oracle (NASDAQ:ORCL) are well-established … and even these giants have to be on their guard from smaller, agile upstarts like Red Hat (NYSE:RHT).

When does Meggers plan to get into the enterprise game or the mobile game? Ever? Just rolling over and dying, letting Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) take over the world may be the path of least resistance … but it doesn’t exactly protect shareholders long term.

Do we simply hop on the HP laptop and printer train and hope you can get up to speed wholly by jettisoning costs and overhang to lighten the load?

Excuses, Jargon, No Vision

HP whitman goals slide
Click to Enlarge
As a rule I hate these kind of analyst calls. The vapid tap dance about the strength of loyal customers, loyal partners and global reach, the lack of self-awareness that lets you assert “innovation is alive and well at HP” without a hint of irony, the jargony BS about a vision to “bridge the gaps created by the vertical stacks of other players” — it makes my ears bleed.

But I suffered through it waiting to hear something — ANYTHING — about the future, instead of just excuses about the past and excuses about Europe and excuses about a need for more time. Take a look at the “challenges” slide from the presentation here and tell me with a straight face this isn’t someone trying to point the finger anywhere but at the company itself.

So dump HP, ASAP.

And if that wasn’t enough for you, check out this self-serving payoff, so galling that I had to grit my teeth as I transcribed it:

“The single biggest challenge has been the changes in CEOs and changes in executive leadership,” Whitman said. “This is important, because it’s going to take longer to right this ship than any of us would like.”

In other words, I’m here for the duration — because the board would be foolish to fire me no matter what happens in the next two or three years.

You’re stuck with me. So be patient.

For the record, I have been bearish on HP for gosh knows how long, most recently panning Whitman’s turnaround plan earlier this year. I could be locked into the narrative and stubbornly refusing to see the big picture here … but I doubt it.

Because ahead of Hewlett-Packard’s analyst meeting Wednesday, many other folks on Wall Street and in the media were questioning the efficacy of the Whitman turnaround even before they heard a word.

HP stock is down more than 30% year-to-date.

According to a Market Watch report, Steven Milunovich of UBS in a note Monday warned that the company “may need to look at corporate restructuring” given its rising debt levels.

And JPMorgan analyst Mark Moskowitz wrote in a note to clients that the biggest question isn’t growth right now, but a rapid streamlining in anticipation of growth.

“In our view, a courageous move would be for H-P to sell the PC and printing businesses to help pay down debt and reset the company’s revenue base, setting the stage for renewed growth over the long term,” Moskowitz wrote.

So much for courageous acts, Mark. Time to bail.

Most to the point: Jefferies analyst Peter Misek called HP a sell and dropped his estimate on the floor for HPQ stock to just $14, less than half the 52-week high of $30 that it hit in February.

That tells you how low the bar was set before Whitman spoke today. And after suffering through the webcast, I believe  the bearish opinions on Wall Street are 100% justified.

So call me in 2014 and I might change my mind. In the meantime, I’m going to spend my time investing in stocks that actually have a shot at delivering gains in the next 12 to 18 months.

You’re not buying a bargain at HP. You’re betting on a miraculous turnaround in the face of the worst of corporate culture. That is not a wise investment in any market, but it’s particularly unwise at a time when macro fears are cropping up.

Related Reading

Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

Get The Slant delivered to your inbox every day!