Morgan Stanley: Meg Whitman's Departure Limits Upside For Hewlett-Packard

Hewlett Packard Enterprise Co HPE announced the premature resignation on Tuesday of CEO Meg Whitman, who had previously planned to step down Feb. 1.

Whitman’s departure far outweighed the firm’s fourth-quarter earnings beat, catalyzing a sharp sell-off in the stock and reinforcing analyst caution.

The Rating

Morgan Stanley analyst Katy Huberty maintained an Equal-weight rating on Hewlett-Packard with a $14 price target.

The Thesis

Hewlett Packard’s leadership turnover is seen to hinder the firm’s restructuring process as it fends off competition from Dell and NetApp Inc. NTAP, Huberty said. (See Huberty's track record here.) 

Morgan Stanley identifies heightened execution risk as HPE reduces its stock keeping units, shrinks its geographic reach and condenses management and compensation.

The transition is also considered disruptive to HPE’s product portfolio innovation, which was reported on the earnings call to be management’s pressing focus.

“The combination of CEO transition and further cracks in execution limit share price upside near term,” Huberty said in a Wednesday note.

Setbacks in the firm’s strategy may be offset by mix shift to networking and services, which Huberty expects to drive margin expansion.

Price Change

HPE traded down 8.5 percent Wednesday at a rate of $12.90. The stock is down nearly 44 percent year-to-date.

Related Links:

The Easy Money Has Already Been Made In HP Enterprise

Einhorn's Positions In HPE, Micron, Tempur Sealy Create Curious Volatility