Hewlett Packard’s long-awaited split into two separate companies has finally arrived, and Wall Street seems divided on the spawn.
HP Inc. (HPQ), which sells personal computers and printers, outperformed the data center hardware and services company Hewlett Packard Enterprise (HPE) on Monday in their first day of trading. Shares of HP Inc. Were up nearly 13% in late trading. Shares of HPE, on the other hand, were down 1.6%.
Hewlett Packard Enterprise #HPE just launched at the New York Stock NYSE #newHPE.@NYSE.@HPE.@HPE_ITpic.twitter.com/iFlCKreMGU
— Enrico Martines (@enrico_martines) November 2, 2015
Although HPE had a rocky start, FBR Capital Markets analyst Daniel Ives told Coins2Day that investors shouldn’t jump to any hasty conclusions based on the company’s first day trading. Merely going through with the split is a coup considering how bloated its predecessor had become, he said.
“So far it’s a victory for technology investors that have advocated splits and divestitures across the technology space,” Ives said.
Ives said that HP Inc’s solid performance on Monday could be attributed to technology investors scouring for stocks they feel are undervalued. Cross Research analyst Shannon Cross echoed Ives’s comments by telling Reuters, “I think people see more opportunity for upside in HP Inc earnings and more aggressive return of cash to shareholders.”
Prior to the split, HP’s PC and printer business sales had suffered a 6% decline over the past nine months. Meanwhile, HP’s enterprise sales were flat during that period.
Credit Suisse analyst Kulbinder Garcha seemed confident about the new HP Inc. While acknowledging in a research note on Monday that the PC and printer market is declining. He was optimistic that a plan to sell more copier machines and business-friendly printers coupled with more people buying computers to replace their older machines would help lift revenue.
This notion of consumers replacing their personal computers because they want an upgrade contrasts with a recent Barclay’s report on business technology spending. They compared PCs and printers to refrigerators, which consumers typically don’t replace until they absolutely need to.
As for HPE, Garcha is less optimistic. He cited a continuing challenge in cloud computing, in which businesses buy computing resources on demand from vendors like Amazon and Microsoft.
To counter the decline, both Garcha and Ives believe that HPE will be scouting for companies to acquire to build up its technology. Considering H.P.’s history of questionable acquisitions, it will be interesting to see whether a smaller and presumably nimbler version will be able to make better acquisitions—and then successfully integrate them.
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