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Hewlett-Packard Goes Back to Basics

HP faces diverse headwinds, creating an uphill climb to re-establish operational improvements, but investors finally have reason to be optimistic.

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New CEO Meg Whitman used  Hewlett-Packard's (HPQ) fourth-quarter conference call to send a clear message to investors: Management is focused on operating the businesses that HP already owns, not lusting after acquisitions. HP faces diverse headwinds, creating an uphill climb to re-establish operational improvements, but investors finally have reason to be optimistic as Whitman looks to restore order from the chaos that has consumed HP during the past 12 months.

Fourth-quarter results were slightly better than we anticipated on revenue and earnings, but with the new regime in place only eight weeks, it is the 2012 outlook that matters most for investors. Management guided to lower revenue and earnings in fiscal 2012, with non-GAAP earnings expected to be greater than $4.00 per diluted share, a sharp decline from the $4.88 delivered in fiscal 2011. We believe the $4.00 EPS level represents a solid target with little risk of a miss, but also allows for the investments necessary to position HP for subsequent years of EPS growth. No specific revenue guidance was given, as management looks to emphasize profitability over growth.

Michael Holt does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.