Is Hewlett-Packard a Strong Buy or Value Trap?

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With Hewlett-Packard (NYSE:HPQ) recently making major announcements and currently trading at new multi-year lows, is the blue-chip member a BUY, a WAIT and SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

E = Earnings Are Increasing Quarter over Quarter?

It is no secret that the PC industry has been suffering amid a growing shift towards more portable and popular gadgets, with companies like Hewlett-Packard and Dell (NASDAQ:DELL) serving as whipping boys. Earnings at Hewlett-Packard have been increasing quarter-over-quarter all year, but decreasing on a year-over-year basis. The company recently announced that its fiscal fourth quarter earnings excluding items came in at $1.16 per share, up from $1.00 a share in the third quarter. In the second quarter and first quarter, H-P earned 98 cents and 92 cents per share, respectively. Compared to last year, fourth quarter earnings declined from $1.17 per share. In the third fiscal quarter of 2011, earnings came in at $1.10 a share.

H-P is conducting a painful turnaround effort, but management appears upbeat. Meg Whitman, president and chief executive officer, explained in the fourth quarter earnings release, “As we discussed during our Securities Analyst Meeting last month, fiscal 2012 was the first year in a multiyear journey to turn H-P around. We’re starting to see progress in key areas, such as new product releases and customer wins. We’re particularly pleased that in Q4, we were able to improve our balance sheet, generating $4.1 billion in operating cash flow, and we returned $384 million to shareholders in the form of share repurchases and dividends.”

However, earnings have been slow to show any improvement, and revenue figures are not making investors feel any better about the future. In the fourth quarter, revenue decreased to $30 billion, a 7 percent decline from the prior year and below analysts’ estimates. For the full fiscal year, net revenue totaled $120.4 billion, down 5 percent from last year. Personal Systems revenue plunged 14 percent year-over-year, while Printing revenue dropped 5 percent.

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