HP shares rise as investors take positive view of cash return plans

Wed Sep 16, 2015 3:29pm EDT
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(Reuters) - Shares of Hewlett-Packard Co (HPQ.N: Quote) rose as much as 5 percent on Wednesday as investors cheered plans for the company's soon-to-be separated but struggling PC and printer business to return more capital to shareholders than many had expected.

HP, which has struggled for years in a declining PC market, also said it would cut up to 33,300 jobs over the next three years, mostly in its enterprise business.

HP Inc, which will house the PC and printer business when HP is split up on Nov. 1, is expected to generate free cash flow of $2.5 billion to $2.8 billion in fiscal 2016 and return up to 75 percent to shareholders, Hewlett-Packard said on Tuesday.

The company said HP Enterprise - the fast-growing business that will sell computer servers, networking gear and data storage to businesses - will return "at least 50 percent" of its free cash flow of $2.0 billion to $2.2 billion.

The planned capital return from HPE initially disappointed investors, who pushed down HP's shares 1.4 percent in extended trading on Tuesday.

HP's shares were 3.7 percent higher at $28.12 in early afternoon trading on Wednesday after hitting a high of $28.54.

Up to Tuesday's close, the stock had fallen by a third this year.

"I think investors will gravitate to HP Inc (over HP Enterprise) because they have a leadership position in PCs and print and the free-cash flow model is very strong," said Jayson Noland, an analyst at Robert W. Baird & Co.

Noland has a "hold" rating on HP's stock, with an unchanged price target of $38.   Continued...

The Hewlett-Packard (HP) logo is seen as part of a display at the Microsoft Ignite technology conference in Chicago, Illinois, May 4, 2015. REUTERS/Jim Young