Posts Tagged ‘PAR’

Hewlett-Packard (HPQ) Fair Value Estimate

August 27th, 2010

When BP (BP) was in the heat of the Gulf explosion crisis, we presented our free cash flow sensitivity analysis (here) and forecast, showing the stock was fairly valued in the mid- to perhaps upper- $30s range.  When the stock reached $40, we reported that investors were “getting giddy” over its prospects (see article here)—that were not warranted given its free cash flows, and increased cost of equity related to the uncertainly of its free cash flows and updated capital structure.

Here we do the same now for Hewlett-Packard (HPQ): which results in a fair valuation of $47.27.

» Read more: Hewlett-Packard (HPQ) Fair Value Estimate

Comment on HPQ

August 26th, 2010

While the bidding for 3PAR (PAR) is reminiscent of two drunks at a horse auction, whereby the winner is the loser, the 2 point decline in HPQ (HPQ) shares seems excessive. By taking $4.6 billion off its market value relative to the $1.6 billion (at last count) acquisition, investors appear to be ignoring the enterprise’s 8% free cash flow yield. The executives at HPQ have done an admirable job wringing costs out of the firm, from supply chain to benefits.

» Read more: Comment on HPQ

HPQ, Business Acquisitions, and Share Buybacks

August 25th, 2010

The fact that HPQ (HPQ) and DELL (DELL) have recently grossly underperformed the technology index is tacit recognition their pursuit of 3PAR (PAR) is a value destroying acquisition. Investor response is therefore appropriate in light of the minimum $1.6 billion cash outflow, in return for an asset that is barely free cash flow positive, and brings to light the seriousness in which business acquisitions must be analyzed. In fact, I estimate, 3PAR would need to add over $ 40 million in free cash flow for the deal to make sense, a scenario not foreseen for at least 3 years.

» Read more: HPQ, Business Acquisitions, and Share Buybacks

Business Acquisitions

August 23rd, 2010

The Dow ran up some 90 points this morning, possibly in reaction to Hewlett-Packard’s (HPQ) bid topping for 3Par (PAR). Analysts and reporters again stressed the cash on balance sheets that has been building since 2009 Q1.



August 23rd, 2010

A quick reading of 3PAR’s (PAR) financial statements reveals the $1.6+ billion deal is not value-adding for HPQ shareholders.