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A HP Invent logo is pictured in front of Hewlett-Packard international offices in Meyrin near Geneva in this Aug. 4, 2009 file photograph. (Denis Balibouse/Reuters/Denis Balibouse/Reuters)
A HP Invent logo is pictured in front of Hewlett-Packard international offices in Meyrin near Geneva in this Aug. 4, 2009 file photograph. (Denis Balibouse/Reuters/Denis Balibouse/Reuters)

Eye on Equities

HP is 'a mess,' but it's worth buying: analyst Add to ...

After the pummeling of Hewlett-Packard Co. shares last week, investors may be left wondering whether there’s a value play to be had.

Analyst Kevin Hunt of Auriga thinks there is, upgrading HP today to “buy” from “hold.”

But he points out there’s one big caveat: shareholders will need a lot of patience to reap rewards from a company that’s in disarray.

“We would not take this as an opinion that HP is a great company, or that we have any faith in the current management team,” Mr. Hunt was quoted by MarketWatch as saying. “We don’t think either of those is the case. HP is still a mess.”

But messes can eventually be cleaned up, and Mr. Hunt believes the company's assets have enough value to make HP attractive as an investment over the long term.

“Eventually somebody, be it current management or a new group, might be able to extract the value,” Mr. Hunt said. “And at that point, those buying low might well be rewarded,” he said.

HP shares lost 20 per cent of their value Friday after the company a day earlier provided a disappointing quarterly report and outlook while announcing plans to spin off is PC business and shut down its new tablet. It also plans to make a $10-billion acquisition of British software company Autonomy.

Upside: Mr. Hunt set a new price target of $32 on the stock, down from his previous target of $43.

Canadian Tire Corp.’s acquisition of Forzani Group Ltd. should provide immediate earnings per share growth while giving management additional time to realize gains from its internal growth initiatives, said Desjardins Securities Inc. analyst Keith Howlett. He believes the ultimate earnings boost from the acquisition and related synergies will be about 70 cents per share.

Upside: Mr. Howlett has a $74 price target on the stock.

Raymond James Ltd. analyst Daryl Swetlishoff is urging investors to add to positions in Domtar Inc. given “current extremely inexpensive valuation.” The paper producer is down close to 30 per cent from early July and trades at an estimated 2012 enterprise value to earnings before interest, taxes, depreciation and amortization ratio of just 2.1 times. “Meanwhile, the company sports an outstanding 26 per cent free cash yield, and is somewhat sheltered from economic malaise due to price stability fostered by heavy industry consolidation,” he said.

Upside: Mr. Swetlishoff’s six- to 12-month target price is $125 (U.S.)

Eldorado Gold Corp. has outlined a new plan to more than double production at its Kisladag open-pit mine in Turkey. While this will jack up capital costs, these will be more than offset by lower production costs and higher output, suggests Desjardins Securities Inc. analyst Brian Christie. “With the expansion, Kisladag remains one of the lowest cost operations of its size,” he commented.

Upside: Mr. Christie raised his price target by 75 cents to $22 (U.S.) and maintained a “buy” rating.

Altus Group Ltd. shares have plunged more than 60 per cent since its acquisition of Realm Solutions in April, as the real estate consulting firm had to cut its dividend and take on considerably more debt. While AIF’s aggressive growth strategy has made the stock more risky, “we expect significant equity value remains in Altus shares and that the company could be successful in de-levering through asset sales at normal valuations,” said CIBC World Markets Inc. analyst Alex Avery. He also thinks the company is vulnerable to a takeover.

Downside: Mr. Avery cut his price target to $4 from $9 and rates the stock as a “sector performer-speculative.”

Omni-Lite Industries Canada Inc. has received its first production order from a tier-1 military customer for parts related to the U.S. military’s lead-free initiative. Raymond James Ltd. analyst Steve Hansen called this an “important milestone” for the specialized metal producer, expecting further orders to come from the U.S. at a time when the company's other divisions are also seeing a pick-up in sales.

Upside: Mr. Hansen maintained a “strong buy” rating and price target of $3.

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