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HP hammered by downgrade
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June 13, 2000: 1:57 p.m. ET
Bernstein also cuts earnings estimates for the maker of printers and computers
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NEW YORK (CNNfn) - Shares of Hewlett-Packard tumbled more than 6.5 percent Tuesday after investment bank Sanford J. Bernstein downgraded the maker of printers and computers and cut its earnings forecasts.
Questioning HP's ability to meet investor expectations, Bernstein also lowered Hewlett-Packard (HWP: Research, Estimates) to "market perform" from "outperform" and trimmed its fiscal third-quarter earnings forecasts to 81 cents per share from 83 cents per share. Fiscal year 2000 projections were cut to $3.51 per share from $3.54 per share.
News of the downgrade hit shares of the Palo Alto, Calif.-based company, a component of the Dow Jones industrial average, hard. By late afternoon, HP was off 8-1/8 to 117-7/8 in late afternoon trade. 
Explaining the move, Bernstein analysts Toni Sacconaghi and Elliot Rothstein cited growing competition that could render company's fiscal third-quarter sales targets of 15 percent growth overly optimistic.
"We believe there is increasing evidence that HWP may not be able to deliver against (expectations for 15 percent revenue growth) and apparently increasing investors expectations for Q3 and possible Q4," the analysts wrote in a research note issued just before the stock markets opened.
The investment bank also expressed concern over HP's "fully valued" stock price, which has run up 34 percent since an analysts' meeting two week ago.
Bernstein cited increased competition in the Unix server business from Compaq (CPQ: Research, Estimates), IBM (IBM: Research, Estimates) and Sun Microsystems (SUNW: Research, Estimates). The laser printer business, Bernstein said, appears to be suffering from soft corporate spending.
The euro's weakness also could crimp HP's results, Bernstein said. Already several companies with a big European presence, including Gillette (G: Research, Estimates), have said the euro's weakness could hurt earnings translated into dollars.
But Steve Pavlovich, head of investor relations, disagreed with the report.
"We are on track for the quarter," he told a reporter at a Bear Stearns technology conference in New York. "We have not changed our guidance one iota."
Still, Bernstein called HP an attractive long-term holding. But the investment bank said the computer and printer maker could have a tough time meeting its forecasts because PC and laser printer sales progress "appears to be below plan."
The Bernstein note comes less than two weeks after investors cheered Hewlett-Packard's deal with Amazon.com (AMZN: Research, Estimates) to provide the Internet retailer with computer hardware and related systems. The deal made Amazon one of HP's top five customers.
The Bernstein analysts wrote that HP's recent stock run-up made the company too expensive. But it's no longer as expensive as it was when the report was issued. 
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Hewlett-Packard
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