Deutsche Bank’s hardware analyst Chris Whitmore today reiterates a Sell rating on Hewlett-Packard (HPQ) shares, writing that the company is overly exposed to the breakdown in Europe’s economy, not just as it pertains to foreign exchange, but also as regards the overall credit crunch and its impact on buying.
Hardware companies in tech get 30% of revenue from Europe, on average. There’s a smaller “tailwind” from foreign exchange as the dollar surges agains the Euro (as was seen in IBM’s (IBM) Q3 results on Monday.)
But, “Beyond the currency translation impact, we expect a significant slowdown in IT growth in Euro-land resulting from austerity measures and decreased access to cheap capital / financing �C particularly in the SMB market.”
Whitmore advises judging the stocks based on their price not just as a multiple of earnings but also as a multiple of “unlevered free cash flow.”
On that basis, he sees Apple (AAPL), which he rates a Buy, being “cheap,” at 8 times. HP is comparatively “rich” at 9 times, “particularly considering its large exposure to Europe at greater than 35%.”
HP also screens among the worst on a “net cash to market cap basis,” he notes.
HP shares today are down 32 cents, or 1.3%, at $25.29.
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