Analyst calculates HP’s stock, should be negative-$2

On Wall Street, when there is blood in the water, the sharks gather and tear things apart – figuratively speaking. Companies caught in this cycle may feel like they cannot catch a break.

On Wednesday, HP CEO Meg Whitman stunned a group of analysts, at an investor’s conference in San Francisco, by announcing that the company would see its earnings fall by 10% or more next year.  Following that announcement, HP’s stock hit a 10-year low. It was well known that the company was facing serious challenges, but this announcement took the wind out of the sails.

Enter Shaw Wu, an analyst with Sterne Agee, he was known as one of the few that felt HP still warranted some benefit of the doubt. After the announcement, his position changed to neutral. He then reviewed HP’s balance sheet and described it as awful. So awful, the company’s stock is really worth negative $2. “They are fortunate the stock’s not zero,” said Wu.

“Their balance sheet is a mess. We calculated—I couldn't believe this—the tangible book value [at] -$2 [a share]. The book value, when you look at it, says $16. But you have to take out the $36 billion in goodwill. They are going to write that off, the whole thing at some point. So basically, the company's intrinsic value is negative. They are fortunate the stock's not zero. This is not an opinion. These are facts.” – Shaw Wu, Analyst at Sterne Agee

Echoing Whitman’s sentiments that the challenges are structural, stemming from the merry-go-round of executive leadership over the past couple years, Wu added that the company’s PC unit is not effectively competing with mobile devices, Windows 8 sales will be weak, and that the printer business, once the shining star of HP, was dying.

Like we noted at the beginning, HP’s announcement this past week was a blood-letting in Wall Street terms, and investor sharks are nary very forgiving.