HP Sum of Parts Valuation Is No Guide

Analysts who claim that a "sum of parts" valuation of HP at $37 per share justifies a "buy" are whistling in the wind, putting forward numbers without a reasonable basis.  Projections for sales, earnings and cash flow are all contingent on a capable management team, a motivated organization in tune with the strategic plan, and on a board that is itself of one mind and supportive of management and the plan.

As far as I can see, none of these things are in place at HP.  The new CEO comes from a consumer focused company into a technology company trying to refocus on the enterprise business, as different as night and day. She will be learning on the job. Who knows what the management team will look like after defections and reshuffling?  An organization that leaks information so consistently, thereby hurting their own share price is dysfunctional and clearly not motivated to focus on the business.

The sales teams are having their heads handed to them by customers demanding answers, and they have none because the former CEO was so absurdly out of touch. How can they maintain and grow their sales relationships? Sell the PC business: yes or no?  The new CEO has to study the issue, although she was a board member that supposedly signed off on that decision.  What if she comes to a different conclusion upon further reflection? The Autonomy deal can't be broken without major financial damage and loss of focus working on court actions.  How will that deal add value?

The same board is in place, with the same unhealthy dynamics and deeply flawed visions.  Board chair Lane's public flip flops on former CEO Apotheker don't give any comfort about temperament or judgment, and there's the continuing question about how much his position as Oracle's #2 is an asset to HP or a liability.  Oracle's poke in the eye to HP by hiring Mark Hurd was great PR grandstanding.

This kind of strategic, communications and governance debacle at HP is usually reserved for micro cap companies or for companies that are quasi-public, i.e. controlled by a family, an entity, or by an uber CEO.  For a company of HP's size, this should generate years of business and law school case studies.

Value investors looking at HP won't get an extra reward for being early, because so many of the risks are unknown at this time.  Technicals and noise trading should dominate the stock in the near term, Time is the friend of a new, fundamental investor looking at this stock.