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Analyst Blog

Shares of Hewlett-Packard (HPQ - Analyst Report) have gained momentum from its strong fundamentals and encouraging third-quarter fiscal 2014 results released on Aug 20, 2014. Since the release, the stock price moved up 7.7%.

H-P’s shares touched a new 52-week high of $38.13 yesterday, eventually closing at $37.83. This Zacks Rank #3 (Hold) stock amassed a return of approximately 72% over the past year and a year-to-date return of 36.8%.

H-P reported a rise in its top line in the third quarter after 11 consecutive quarters of declines. Revenues compared favorably primarily due to higher sales in the personal computer (PC) segment.

Also, the company witnessed growth in commercial revenues driven by strong demand for commercial desktops and notebooks. The ongoing upgrade of H-P’s installed base and the expiration of the Windows XP operating system also aided segment revenues. Consumer segment was positively impacted by higher sales in its Americas and EMEA regions, which offset the soft demand in Russia and China.

Moreover, the company’s ongoing restructuring program remains on track. By the end of the third quarter, H-P’s workforce was down by 36,000 positions. The company expects another 41,000 job cuts by fiscal 2014-end and 45,000 to 50,000 by the end of fiscal 2015.

Moreover, H-P’s traction in the cloud, security and Big Data segments are expected to be the growth catalysts, going forward. We believe that Hewlett-Packard’s strategic focus on the software business will help it to diversify its revenue source, which is still predominantly dependent on PCs.

Also, the company witnessed 6 positive estimate revisions out of 13 estimates for the fourth quarter over the last 7 days. Thus, the fourth-quarter earnings estimate increased a cent to $1.06 per share.

Despite these factors, macroeconomic challenges and tepid IT spending remain the near-term concerns. Competition from International Business Machines (IBM - Analyst Report) and Oracle (ORCL - Analyst Report) also remain the headwinds for the company.

Other than H-P, investors may also look at Micron Technology (MU - Analyst Report), a Zacks Rank #1 (Strong Buy) stock in the technology sector.

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