Friday, Hewlett Packard announced the suddend and unexpected (forced) resignation of five-year CEO, Mark Hurd.  H-P’s stock fell on the news due to the near-term leadership uncertainties.  Under Hurd’s five years of stewardship at H-P, the company performed extremely well, and while his departure is a disappointment, H-P remains strongly positioned for future growth.

Cost-cutting initiatives have bolstered profitability, and the successful integration of EDS solidifies H-P’s leadership position in the higher-margin technology services/consulting segment.  The company offers investors a unique balance of enterprise sales (services, servers, and other enterprise hardware) and consumer lines (PC’s and printers) at a very compelling valuation.  Following Hurd’s departure, HPQ trades at less than nine times next year’s (Oct. ’11) earnings estimate – a 25% discount to competitor IBM’s valuation.  Like most best-in-breed tech companies, H-P has billions in cash on its balance sheet and very little debt.

In addition to a balanced product line and a global growth footprint, H-P boasts one of the deepest management benches in the tech sector, if not any industry.  We believe the company has the luxury of choosing a replacement for Hurd from numerous qualified internal managers – any of whom are cabable of builidng upon the successful groundwork in place – or will attract top notch outside talent.  As the specifics leading up to Hurd’s ouster become public (and his reported severance package gets negative attention), sentiment for the stock will remain depressed near-term, but we like the longer-term growth trajectory and compelling valuation of this $100 billion tech giant.

Peloton Wealth Strategists owns the common stock of Hewlett-Packard Company.  The opinions expressed above should be construed as neither investment advice nor a solicitation to buy or sell securities.  Peloton Wealth Strategists assumes no liability for losses pursuant to investment actions entered into as a result of opinions expressed herein.  Changes in economic and capital market conditions and the unique objectives of each investor should be considered before investing in securities.