Hewlett-Packard Shares Plunged: What You Need to Know


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What:Hewlett-Packard (NYS: HPQ) dropped 23% in intraday trading today after issuing disappointing guidance and revealing plans to "transform" the business.

So what: Third fiscal quarter non-GAAP EPS of $1.10 rose a modest 2% year over year and beat the $1.09 consensus estimate. Revenue of $31.2 billion grew only 1% year over year, helped by currency exchange rates.

Now what: Fasten your seatbelt: It's complicated. Management retracted guidance for fiscal year 2014, which it issued just last March. For the current quarter the company expects non-GAAP EPS of $0.44 to $0.55, well below the $1.31 consensus estimate. To transform the company, it's killing the tablet and smartphone hardware business it bought in July 2010 and hoping to salvage the webOS software that came with the $1.2 billion purchase. It's considering selling or spinning out its PC business and agreed to pay about $11 billion to buy software maker Autonomy. The transformation is expected to take a number of quarters and pressure earnings during that time. At a P/E ratio of 5.9 times the stock may appear to be a great value, but it could well be a value trap.

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At the time thisarticle was published Fool contributor Cindy Johnson does not own shares of any company named above. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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