Mark Hurd’s hastily announced departure from Hewlett-Packard (HPQ) for conduct-related infractions may provide a buying opportunity for investors looking for a good entrée point for this Dow component.
The news has initially sent shock waves about the stock with the price falling to close at $41.85 on August 6 when Hurd’s resignation was announced, losing 9.7% of its value from the previous day’s close at $46.35.1 But there are reasons why this drop may be an overreaction:
- Hurd has a history of creating a foundation for value that outlasts his presence. NCR (NCR) continued to flourish after he departed as CEO, with its stock price rising from $18.27 on March 28, 2005, the day before the announcement that he was moving to HP, to the mid-$50 in 2007 prior to spinning off Teredata, Corp. (TDC). While NCR’s shares have recently languished, Teredata’s stock hit an all time high this summer.
- The fact that Hurd and the HP board quickly resolved the situation prior to rumors eroding internal morale and the company’s reputation is a big step towards maintaining internal and external confidence, and minimizing damage.
- HP’s stock was already beaten up, down from a high of $54.75 on April 16 earlier this year.
Hurd’s tenure as HP CEO was, other than the allegations that precipitated his departure, a major success. But his departure—while a setback—does not pose the same degree of risk for the company and investors as the departure of a CEO whose personality is ingrained in the company, as I and others have argued is the case with Steve Jobs of Apple (AAPL).
Hewlett-Packard’s situation will become clearer as the direction of the search for a new CEO takes shape and CFO Cathie Lesjak takes the reigns as acting CEO in the interim. But while the post-Hurd aftermath keeps the price down, there’s a good rational to support the risk of buying into HP.
Disclosure: The author is long on Hewlett-Packard (HPQ) as of the original publication date of this post. The author does not hold a securities position in NCR (NCR), Teredata (TDC), or Apple (AAPL). The information provided in this post does not constitute professional investment advice, and should only be used in consonance with all available information, including the opinion of a professional adviser, to make an investment decision.
- There is some confusion over HP’s August 6 closing price, and it seems that the $41.85 indicated by major services as the market close reflects after hours trading following the announcement on Hurd’s resignation after 4 pm. See “HP Stock Price on Electronic Exchange Direct Edge Lowered Closing Quote,” Nick Baker & Nina Mehta, Bloomberg, August 8, 2010, at http://www.bloomberg.com/news/2010-08-09/hp-s-stock-price-on-electronic-exchange-direct-edge-lowered-closing-quote.html. [↩]