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Lex is a premium daily commentary service from the Financial Times. It helps readers make better investment decisions by highlighting key emerging risks and opportunities.

Call Hewlett-Packard the proverbial falling knife – but now that knife is just falling a bit more slowly. And that is enough to send the stock climbing, up 5 per cent in after-market trading on Thursday.

Revenue in the fourth quarter fell 6 per cent to $28-billion, but that was still ahead of analysts' expectations for a decline of 7.5 per cent. With some portion of its operating costs fixed, earnings per share fell even more sharply by 11 per cent to $0.82. Here, too, though, the amount was still more than $0.10 better than the company's own guidance. Every segment – PCs, printing, enterprise and software – saw revenue declines, but overall gross margin was flat at 22 per cent.

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Perhaps most impressive was HP's ability to manage its cash while it tries to stabilise the business. Decreases in working capital translated into a surge of nearly $1.5-billion in cash flow from operations. And, the company's cash balance has grown more than $4-billion in a year to over $12-billion. Investors should expect more in dividends – the current yield is 3 per cent – and buybacks, especially with management now less inclined to make more messy acquisitions.

Ultimately, HP is going to have to cease printing red ink. Nevertheless, investors have recognised that the stock was oversold in the wake of the Autonomy acquisition fiasco. Since November, shares had rallied nearly half to $17 ahead of the latest earnings. But even including Thursday's after-market gains, the stock still trades at a remarkable 5 times forward earnings. Like Dell, HP is furiously reorienting its business – but assuming the Dell management buyout happens, HP will do so in the public markets with everyone closely watching.

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