Analyst upgrades HP with ringing endorsement: 'Even a mess can eventually have value'

Shares rise in wake of brutal sell-off following poor outlook, dramatic strategy change

Shares of Hewlett-Packard (NYSE: HPQ) gained nearly 7% in early trading Monday as investors, partially emboldened by an analyst's upgrade, snapped up shares priced near six-year lows in the wake of last week's massive sell-off. HP's stock climbed early Monday to 24.23, or 6.9%, above Friday's closing price of 23.60.

['Fixing' HP with strong operations strategy and HP's $99 TouchPad tablet selling out in retailer fire sale]

Shares plummeted 20% on Friday in response to HP's dismal third-quarter earnings and yet another downward revision to its full-year revenue outlook. HP preceded Thursday's earnings announcement by confirming rumors that it was going to kill off WebOS, attempt to spin off its PC unit, and buy U.K.-based cloud software and services provider Autonomy for $10.3 billion. Amid all this turbulence and confusion is opportunity, according to Kevin Hunt, an analyst with Auriga who upgraded HP shares to "buy" from "hold." According to MarketWatch, Hunt said investors willing to be patient could "reap rewards from investing in what he called 'the current mish-mash of [company] assets.'" How patient? Maybe patient enough to outlast current CEO Leo Apotheker. Hunt writes (via MarketWatch):

“We would not take this as an opinion that H-P is a great company, or that we have any faith in the current management team. We don’t think either of those is the case. H-P is still a mess.”

Which is why Hunt, in addition to upgrading to "buy," also lowered his share target price to $32 from $43. The trouble with betting on companies with perceived poor management and untapped value is that, as long as the poor management remains in charge, much of the intrinsic value diminishes. Sometimes to the point of no return. So if you don't believe Apotheker is the guy to turn around HP, buying shares -- even at six-year lows -- is a gamble.

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