Hewlett-Packard Co (HPQ) gets our Attractive Rating. To get this rating, HPQ achieved (1) positive economic profits (as distinct from accounting profits**) and (2) a cheap valuation. As shown in our free report on HPQ, the company’s ROIC is in the 2nd Quintile of the 3000+ companies we cover. At the same time, the stock boasts a 7% FCF Yield.
HIDDEN GEM: Our discounted cash flow analysis shows that HPQ’s current valuation (stock price of $38.45) implies that the company’s profits will decline by 20% and never grow again. I’d say those are some low expectations – meaning there is lower downside risk in the stock and the upside is substantial if the market gives HPQ credit for just holding profits steady.
See Appendix 4 to learn how HPQ increased NOPAT by cutting costs and increased its NOPAT Margin. See Appendix 5 for details on how HPQ expanded its Invested Capital. Appendix 7 (in the Return on Invested Capital section) shows how the improved NOPAT Mar gin and lower Invested Capital Turns result in an decrease inROIC (to 12.1% from 2.9%) and Economic Profit, which fell by $12mm while Net Income fell by $670mm.