Where do we begin today in discussing the plethora of news surrounding Hewlett Packard (ticker: HPQ) today?
First was the earnings announcement, which once again had the company lowering forward guidance. While the actual earnings and revenues were in line, the outlook was tempered dramatically. Additionally, the company announced an acquisition of enterprise management company Autonomy for $10 billion, which many viewed as pricey given the nearly 60% premium paid. The company also announced it was looking to spin off its PC business, a direct about-face given the recent Palm acquisition.
All these machinations have left investors less than enamored with management, and this has been reflected in the share price, with the stock dropping over 30% today to 6-year lows. But out of despair usually comes opportunity. While the short-term outlook remains muddied at best, the share price at these levels are more reflective of a cataclysmic scenario.
HPQ is trading at under 4.4 times forward earnings, which is utterly cheap. Even with guidance tempered and management in turmoil, the company will continue to grind out revenues and earnings. We feel the selling will subside and the stock will move from its present level of 24 to 28 by January, 2012.
Want to compare and analyze option strategies using this outlook? Try the NEW! TradeBuilder on CBOE.com: http://www.cboe.com/tradtool/TBTradeBuilder.aspx