Rumors have been out today that Hewlett-Packard Co. (NYSE: HPQ) is on the verge of a major round of layoffs. Some chatter has been as many as 25,000 or more pink slips to be handed out. The WSJ, Bloomberg, and others have reported this. Now CNBC’s David Faber has jumped in on a quasi-confirmation.
Faber notes that while the number of job cuts are not yet known, sources indicate that the turnaround of the company is going to include thousands of layoffs.
The question that has to be asked here is one of relevance. H-P is a DJIA component and it is worth under $44 billion in market capitalization since the stock is down more than half from the peak in early 2011. This company employed a whopping 349,600 employees as of October 31, 2011 per its annual report.
What is so sad here is that the market is completely discounting H-P. Literally, this stock trades at less than 6-times its expected earnings. The company was going to jettison its PC business, but the turnaround plan under Meg Whitman determination was that it would just cost too much to break the PC unit out of H-P.
The market either just does not believe that H-P can live up to its earnings through time or it has just reset what the company’s valuation really is. Under 6-times earnings is not expensive by any count as long as those earnings can be maintained. Rival (at least in PC sales) Dell Inc. (NASDAQ: DELL) now trades at only about 7.5-times its forward earnings.
H-P is already loaded up with enough debt of over $25 billion even if it does have a $19 billion cash and liquidity arsenal. Earnings are next week and the layoffs are expected to be announced sometime around that report. The current targets for the April-end quarter are $0.91 EPS and $29.9 billion in sales according to Thomson Reuters.
H-P is up three-cents at $22.06 and the 52-week trading range is $21.50 to $37.70.
Apparently the slogan on a tee-shirt is true, “The beatings will continue until morale improves.”
JON C. OGG
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