Debunking HP's shareholder peace offering

Wall Street's psycho-analysis of Hewlett-Packard's latest board room shuffle has begun.

The stepping-down of Hewlett-Packard Co Chairman Ray Lane and appointment of activist investor Ralph Whitworth as his interim replacement has raised hopes for a more "shareholder friendly" board at the flailing PC maker.

But investors aren't buying it just yet, and HP shares fell more than 2 per cent in morning trading on Friday.

Wells Fargo analyst Maynard Um said the shakeup at HP, which follows a series of missteps including the messy acquisition of UK software firm Autonomy, could result in longer-term "shareholder friendly" actions "potentially from a capital allocation perspective."

But he said that while he now had more comfort about HP's ability to fix its foundation, the company needed new products and initiatives to offset a general downturn in the personal computer market. And any changes are likely to take time to formulate and materialise, Um said.

Apart from a new chairman or chairwoman, investors are waiting to see the final composition of the board. Two directors of the No.1 PC maker also stepped down on Thursday.

"The appointment of Ralph Whitworth to the chairman role, albeit temporarily, points a more fiscally conservative and shareholder friendly board as the debt burden ebbs," Credit Suisse analysts said in a research note.

Analysts held fire on their ratings and price targets on the stock, which has risen 90 per cent since it hit a 10-year low in November when HP said it would write down $US9 billion in assets related to the Autonomy deal. The S&P 500 index has risen 12 per cent in the same period.

Lane, who remains a director, joins the list of prominent casualties of the $US11 billion Autonomy deal, for which the company has been criticised for failing to conduct proper due diligence.

But HP's board and executive leadership has been in tumult since the departure in 2010 of former CEO Mark Hurd over sexual harassment allegations -- which Hurd has denied -- and Leo Apotheker's brief stint at the helm, during which the company made several operational blunders.

Whitworth, an HP director who runs activist hedge fund Relational Investors LLC, had told shareholders at the annual meeting in March to prepare for an "evolution" of the board.

HP's stock was changing hands at $US21.98 in early afternoon trading on the New York Stock Exchange, well below its intrinsic value of $US39.51, according to Thomson Reuters StarMine data.

The model measures a stock's current value when considering analysts' growth estimates for five years, and then modelling the typical growth trajectory over a longer period of time.

Netflix Inc and Best Buy Co Inc are the only S&P 500 component stocks that have outperformed HP's 56 per cent rise so far this year.

According to StarMine, HP has a forward price-earnings ratio of 6.3, well below the median of 9.4 for the technology sector.

However, in the past year, HP's shares have fallen 4 per cent, while the S&P index has risen 11.5 per cent.

RBC Capital Markets analysts pointed to HP's "unravelling" fundamentals in maintaining their "sector-perform" rating, but said Whitworth's appointment was a positive step in corporate governance.

"Going forward, HP will have to face headwinds in PCs and printing that are more secular and less macro in nature," the analysts said.

"Furthermore, HP's impaired balance sheet will make it tougher for HP to invest in other avenues of growth."