Hewlett-Packard Maintains A Hold

We maintain our Hold recommendation on the shares of Hewlett-Packard Company (HPQ).

Hewlett-Packard is currently trading at a P/E multiple of 8.7x our 2009 EPS estimate of $3.99. This is a discount to the industry mean. The company has sustainable competitive advantages, including its broad product line and strong international (deriving 68.0% of Q3 2008 revenue) presence as well as strong consumer presence. However, stiff competition in enterprise markets and economic concerns point to potentially slowing top-line growth.

As the global economy weakens, HP’s international exposure could end up hurting the company relative to competitors that have less international exposure. Creating further headwinds, these economic conditions have caused the dollar to strengthen against a number of global currencies, which will depress growth in US dollar terms from markets that have weakening currencies should the trend continue.

Finally, we are concerned about added execution risks associated with the integration of EDS and the fact that EDS has a slower growth rate than Hewlett-Packard. We lower our six-month price target to $36.00, which represents a P/E multiple of 9.0x our fiscal 2009 EPS estimate.

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