BargainValueHunter Posted November 20, 2012 Share Posted November 20, 2012 HPQ is trading at a ridiculously low price to free cash flow ratio. The media pretty much says that below $12 HPQ is dead money. They said that Bank of America was dead money too. Might be time to take a hard look at this and DELL... Link to comment Share on other sites More sharing options...
Parsad Posted November 20, 2012 Share Posted November 20, 2012 HPQ is trading at a ridiculously low price to free cash flow ratio. The media pretty much says that below $12 HPQ is dead money. They said that Bank of America was dead money too. Might be time to take a hard look at this and DELL... It is, I agree. But with stuff like above, constant changes in management and execution, combined with the sheer size of the turnaround, it will be tough. It is cheap...they start cutting, firing, cleaning house and behaving more shareholder friendly, and you will see a bounce...but can they get that execution? The same bet on DELL, but I think they are a little further ahead on the turnaround, better capitalized and half the size. They also focus on SME's rather than the big boys, so it's a niche they are really starting to get good traction in. Regardless, I love it when entire sectors of companies are viewed as rubbish by markets...always a bargain to be found. Cheers! Link to comment Share on other sites More sharing options...
cayale Posted November 20, 2012 Share Posted November 20, 2012 It is, I agree. But with stuff like above, constant changes in management and execution, combined with the sheer size of the turnaround, it will be tough. It is cheap...they start cutting, firing, cleaning house and behaving more shareholder friendly, and you will see a bounce...but can they get that execution? The same bet on DELL, but I think they are a little further ahead on the turnaround, better capitalized and half the size. They also focus on SME's rather than the big boys, so it's a niche they are really starting to get good traction in. Regardless, I love it when entire sectors of companies are viewed as rubbish by markets...always a bargain to be found. Cheers! I'd rather have DELL's balance sheet... Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted November 20, 2012 Share Posted November 20, 2012 I think that Whitman got lucky with eBay in that she inherited an incredible franchise. eBay's purchase of Skype and later resale is questionable. Her ethics in accepting hot IPO stock that could be flipped for a quick profit is very questionable. Lawrence Ellison (one of the world's richest men and definitely an expert in the field) says that the HP board made a huge mistake in getting rid of Chris Hurd (he now works for Ellison). I see HP as being a terribly managed company. 2- HP does have a mainframe business which should be extremely sticky as it is really costly for its customers to switch to another system. Link to comment Share on other sites More sharing options...
Palantir Posted November 20, 2012 Share Posted November 20, 2012 HPQ is trading at a ridiculously low price to free cash flow ratio. The media pretty much says that below $12 HPQ is dead money. They said that Bank of America was dead money too. Might be time to take a hard look at this and DELL... Yeah it's only a large player in a declining PC business, has done terrible acquisitions, is run by inexperienced and possibly incompetent management, runs a substantial debt load, and lacks any clear direction in strategy. Link to comment Share on other sites More sharing options...
FrankArabia Posted November 20, 2012 Share Posted November 20, 2012 HPQ is trading at a ridiculously low price to free cash flow ratio. The media pretty much says that below $12 HPQ is dead money. They said that Bank of America was dead money too. Might be time to take a hard look at this and DELL... Yeah it's only a large player in a declining PC business, has done terrible acquisitions, is run by inexperienced and possibly incompetent management, runs a substantial debt load, and lacks any clear direction in strategy. folks, this is an example of when people HATE a stock in all fairness, Palantir is 100% correct in his assessment....but.....lets not forget, a company is worth anywhere between zero and not zero.... Link to comment Share on other sites More sharing options...
Myth465 Posted November 20, 2012 Share Posted November 20, 2012 HPQ is trading at a ridiculously low price to free cash flow ratio. The media pretty much says that below $12 HPQ is dead money. They said that Bank of America was dead money too. Might be time to take a hard look at this and DELL... Yeah it's only a large player in a declining PC business, has done terrible acquisitions, is run by inexperienced and possibly incompetent management, runs a substantial debt load, and lacks any clear direction in strategy. +1 I am glad I stayed away from both HP and Dell. Dell looks interesting, but I dont like their acquisitions either. Also its hated, but perhaps Mr. Market is right, sometimes trash is just trash. They just blew $8 billion, what more proof do you need. Link to comment Share on other sites More sharing options...
BargainValueHunter Posted November 21, 2012 Share Posted November 21, 2012 HPQ is trading at a ridiculously low price to free cash flow ratio. The media pretty much says that below $12 HPQ is dead money. They said that Bank of America was dead money too. Might be time to take a hard look at this and DELL... Yeah it's only a large player in a declining PC business, has done terrible acquisitions, is run by inexperienced and possibly incompetent management, runs a substantial debt load, and lacks any clear direction in strategy. If only HP had any assets or a global customer base or a famous brand name or earnings or an incredibly low multiple! Oh well, a person can at least dream. I suppose it will soon trade for $3 or $4 per share (roughly its annual earnings). Link to comment Share on other sites More sharing options...
west Posted November 21, 2012 Share Posted November 21, 2012 BVH, It might be worthwhile to dig in and see what those earnings consist of. Chanos had a comment about how HP has *really* been doing, earnings and revenues wise, if you back out all their acquisitions. His comment, and the merit behind it, may be worth looking into. west Link to comment Share on other sites More sharing options...
Parsad Posted November 21, 2012 Share Posted November 21, 2012 BVH, It might be worthwhile to dig in and see what those earnings consist of. Chanos had a comment about how HP has *really* been doing, earnings and revenues wise, if you back out all their acquisitions. His comment, and the merit behind it, may be worth looking into. west Chanos' argument was one of the dumbest ones I've ever heard. He effectively was saying that they paid too much for acquisitions and that is somehow related to revenues...which is completely wrong. The earnings and revenues are only worthless if they are declining or non-existent. Did they overpay? Possibly. Was it the best use of capital? Probably not if they overpaid and revenues weren't near what they expected. But that still does not mean existing earnings or revenues are worthless. Cheers! Link to comment Share on other sites More sharing options...
BargainValueHunter Posted November 21, 2012 Share Posted November 21, 2012 BVH, It might be worthwhile to dig in and see what those earnings consist of. Chanos had a comment about how HP has *really* been doing, earnings and revenues wise, if you back out all their acquisitions. His comment, and the merit behind it, may be worth looking into. west Chanos' argument was one of the dumbest ones I've ever heard. He effectively was saying that they paid too much for acquisitions and that is somehow related to revenues...which is completely wrong. The earnings and revenues are only worthless if they are declining or non-existent. Did they overpay? Possibly. Was it the best use of capital? Probably not if they overpaid and revenues weren't near what they expected. But that still does not mean existing earnings or revenues are worthless. Cheers! Agreed. BAC overpaid for Countrywide and for that they have been paying a STEEP price. But, at the end of the day, the write-offs will end and the earnings power will still be there. It seems that the total sum of HP is more than PC boxes and terrible aquisitions. At $31 or $21 there may not have been enough of a discount to buy future earnings. But @ $11 I am not so sure that 2014 earnings, 2015 earnings and so on are too expensive to buy. Link to comment Share on other sites More sharing options...
vinod1 Posted November 21, 2012 Share Posted November 21, 2012 HPQ would be a good buy with even modestly incompetent management. But their incompetence the last few years is mind boggling and we have the same board still in place. So awfully tempting nonetheless.... But I would wait out for now. Vinod Link to comment Share on other sites More sharing options...
Myth465 Posted November 21, 2012 Share Posted November 21, 2012 I thought Chanos had a good point actually. He basically said you have to include the growth capex component as maintenance capex. They are having to spend this capex to replace declining PC revenue. I think its a fair point. Either way it stinks. They and possibly Dell are overpaying. Either its maintenance capex which is required spending. Or its paying a huge multiple which offsets your low multiple. I think there is value here, but until I get an understanding of the acquisitions its in the too hard pile. Thus far with HP, they have been duds (Palm, Autonomy). Link to comment Share on other sites More sharing options...
roundball100 Posted November 21, 2012 Share Posted November 21, 2012 [...] Thus far with HP, they have been duds (Palm, Autonomy). A dud is a 7-year-old's toy gun failing to fire. $8B is closer to a black hole ... Link to comment Share on other sites More sharing options...
Palantir Posted November 21, 2012 Share Posted November 21, 2012 Yeah, I think Chanos had a reasonable point, HP was buying acquisitions really as a form of R&D. However, that can be common in tech, and not grounds for shorting IMO. Link to comment Share on other sites More sharing options...
Palantir Posted November 21, 2012 Share Posted November 21, 2012 Yeah it's only a large player in a declining PC business, has done terrible acquisitions, is run by inexperienced and possibly incompetent management, runs a substantial debt load, and lacks any clear direction in strategy. If only HP had any assets or a global customer base or a famous brand name or earnings or an incredibly low multiple! Oh well, a person can at least dream. I suppose it will soon trade for $3 or $4 per share (roughly its annual earnings). What assets does HP have? The largest asset on their B/S is Goodwill. Cash levels are low, debt levels are high. Global customer base has low switching costs, at least in the consumer space. Corporate less so. Brand value is not material. Link to comment Share on other sites More sharing options...
Myth465 Posted November 21, 2012 Share Posted November 21, 2012 [...] Thus far with HP, they have been duds (Palm, Autonomy). A dud is a 7-year-old's toy gun failing to fire. $8B is closer to a black hole ... LOL Link to comment Share on other sites More sharing options...
FrankArabia Posted November 21, 2012 Share Posted November 21, 2012 HPQ does have a lot of Goodwill.........certainly a big negative and really was a red flag for me .....its hard to justify it at this point further writedowns are imminent.... Link to comment Share on other sites More sharing options...
txlaw Posted November 21, 2012 Share Posted November 21, 2012 To be fair to Seth K. (or was it S. Klarman?), I think he's probably looking at this company with a view towards run-off and asset sales. Thinking of HPQ more like a cigar butt than a going concern. I've never thought Klarman was a great business analyst, but he's a hell of a portfolio manager, who probably wouldn't be that susceptible to just throwing good money into a money pit without really expecting a MOS in the cash to be generated in the future. Link to comment Share on other sites More sharing options...
enoch01 Posted November 21, 2012 Share Posted November 21, 2012 To be fair to Seth K. (or was it S. Klarman?), I think he's probably looking at this company with a view towards run-off and asset sales. Thinking of HPQ more like a cigar butt than a going concern. Or maybe he owned the common as a partial hedge to being short the debt? http://allthingsd.com/20120724/someone-is-getting-really-nervous-about-hps-debt/ Link to comment Share on other sites More sharing options...
mysticdrew Posted November 21, 2012 Share Posted November 21, 2012 No doubt the previous acquisitions have been disastrous and absolutely should be considered when looking at historical free cash flows. However, it's a different CEO now than the ones that acquired the company (yes she was on the board during autonomy's purchase). The question when thinking about future cash flows (beyond core business declining) is whether this management will continue it's spotty record of over paying for bad companies. My guess is they'll stop with the big acquisitions for now given their history, but that's just a guess. Link to comment Share on other sites More sharing options...
txlaw Posted November 21, 2012 Share Posted November 21, 2012 To be fair to Seth K. (or was it S. Klarman?), I think he's probably looking at this company with a view towards run-off and asset sales. Thinking of HPQ more like a cigar butt than a going concern. Or maybe he owned the common as a partial hedge to being short the debt? http://allthingsd.com/20120724/someone-is-getting-really-nervous-about-hps-debt/ Perhaps, but being short the debt and long common seems like a sucker trade to me if you're a value guy. Don't think Klarman would do that, but who knows? Link to comment Share on other sites More sharing options...
enoch01 Posted November 21, 2012 Share Posted November 21, 2012 To be fair to Seth K. (or was it S. Klarman?), I think he's probably looking at this company with a view towards run-off and asset sales. Thinking of HPQ more like a cigar butt than a going concern. Or maybe he owned the common as a partial hedge to being short the debt? http://allthingsd.com/20120724/someone-is-getting-really-nervous-about-hps-debt/ Perhaps, but being short the debt and long common seems like a sucker trade to me if you're a value guy. Don't think Klarman would do that, but who knows? Yeah, it's a stretch. Just trying to reverse engineer a decision that always left me scratching my head. Baupost just seems too risk-averse to trust their money to this company (given the price paid). Link to comment Share on other sites More sharing options...
Myth465 Posted November 21, 2012 Share Posted November 21, 2012 People keep saying there is a new CEO but Meg Whitman strikes me as a person who was at a company an idiot could run. Not a visionary leader, hell she bought Skype so her acquisition skills are sub par as well. What synergies did Skype have with Ebay, what seller on Ebay would want to talk to the buyer. The platform for that is Craigslist. I would prefer a number 2,3,4,5,6,7 down to 15 executive from IBM during the turn around days. Link to comment Share on other sites More sharing options...
alwaysinvert Posted November 21, 2012 Share Posted November 21, 2012 Let's try another angle. Quite an interesting discussion in the comments over at Bronte Capital. http://brontecapital.blogspot.se/2012/11/hewlett-packard-and-autonomy-notes-from.html Maybe the risks of more dumb acquisitions are overblown? http://tech.fortune.cnn.com/2012/05/08/500-hp-apotheker/ He had wanted to go big in software; he had a British data company, Autonomy, he wanted to buy. It would be a perfect complement to HP's portfolio, Apotheker argued, because its software -- a sort of Google (GOOG) for corporations that can search voicemail, texts, and video -- would bolster HP's software and services offerings. Apotheker appeared before the board and conceded that it was a tricky deal, one that might hurt HP's stock price in the short run. But then the usually formal CEO made an emotional personal appeal. "This company is a burning platform," he told the directors. HP needed a new vision. He concluded: "I cannot do this alone. I need your support. We're going to have to hold hands and go through this together." It was a stirring presentation, but it was followed by an even more dramatic moment that blindsided Apotheker. He knew that the CFO, Lesjak, opposed the deal. She had told him the price, around 11 times revenue, was too rich. Comparable companies were selling for three times revenue, according to investment bank Software Equity Group. He'd countered that Autonomy's profitability more than justified the price. The two had discussed it privately. But then, with no warning to Apotheker, Lesjak made an impassioned case against the acquisition before the board. "I can't support it," she told the directors, according to a person who was present. "I don't think it's a good idea. I don't think we're ready. I think it's too expensive. I'm putting a line down. This is not in the best interests of the company." Directors were shaken. Lesjak was considered a voice of sobriety, and here she was on the verge of insubordination, directly resisting a key element of her boss' strategy. http://blogs.wsj.com/cfo/2012/11/20/h-ps-deal-process-bypassed-cfo-pre-whitman/?mod=wsjpro_hps_cforeporttab/print/ Whitman said that, prior to her appointment, the company’s M&A reporting structure did not involve its chief financial officer, an arrangement that she suggested may have been a factor in its failure to identify alleged accounting fraud at its recently acquired software unit Autonomy. Whitman said in a conference call with analysts Tuesday that, soon after taking over as CEO, she reorganized the company’s M&A structure to put CFO Cathie Lesjak in charge of due diligence. “At the time when I came to the company I was surprised to find that due diligence and M&A reported to strategy as opposed to the chief financial officer,” said Whitman, according to an unedited transcript of the call provided by FactSet. “I’ve never seen that before in my career and that’s the decision I made right away before I knew any of this.” Apotheker is gone and Lesjak is still there and has more say. I think it seems like she pushed as hard as she reasonably could (bar resigning) as a subordinate when it came to Autonomy. With the added embarassment of the writedown and the trainwreck of due diligence maybe they won't make anymore mistakes like that. Once bitten, twice shy? Link to comment Share on other sites More sharing options...
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