Hewlett-Packard's Strong Outlook
With a broad product line, strong international and consumer presence, Hewlett-Packard Company (HPQ) has made progress in growing revenue and through cost controls, has improved margins. The company has maintained a strong competitive position against is closest rivals, International Business Machines (IBM) and Dell, Inc. (DELL). We also believe that HP is attractive due to its large international business, which comprises approximately 69% of revenue, and insulates it from the domestic economy. Meanwhile, HP reported strong 2007 results and raised its outlook for 2008.
For the full fiscal year 2008, HP has raised its estimates given strong performance in the first quarter, and significant international exposure. It now estimates revenue in the range of $113.5 billion to $114 billion versus previous estimate of approximately $111.5 billion. GAAP diluted EPS is now expected in the range of $3.26 to $3.30 versus previous estimate of $3.12 to $3.17. Non-GAAP diluted EPS is expected in the range of $3.50 to $3.54 versus previous estimate of $3.32 to $3.37. Full-year non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.24 per share, related primarily to the amortization of purchased intangible assets. Hewlett-Packard is currently trading at a P/E multiple of 13.2x our 2008 EPS estimate of $3.50. This is a discount to the industry average and a small premium to its closest peer, Dell.
We believe that HP has sustainable competitive advantages, including its broad product line and, strong international and consumer presence. Moreover, HP has also made progress with its cost-cutting initiatives, leading to improved margins. In addition, HP is less sensitive to the U.S. economy than most of its peers as it derives nearly 69% of its revenue from international sales. Given its continued momentum and geographic diversification, we maintain our Buy recommendation on HP shares with a target price of $55. Our target price represents a P/E multiple of 15.7x our fiscal 2008 EPS estimates.
Vodafone Valuation Attractive
We maintain our Buy recommendation for Vodafone Group, Plc. (VOD) the largest revenue-generating international wireless carrier. We expect the firm to continue delivering solid operating results, while increasing shareholder returns through higher dividend payments and share repurchases. The company maintains a healthy dividend pay out ratio of 60%. Meanwhile, momentum is also building for the company's 3G (Third Generation) wireless services, and Vodafone is gaining market share in most of its key markets. Furthermore, the company is focusing on opportunities in untapped emerging markets, such as South East Asia to foster growth. Recent acquisitions and divestitures are forecasted to provide operational efficiency and expand top-line revenue over time.