Hewlett-Packard Shares Fall Like It’s 2005, While Debt Swells
The last time shares of Hewlett-Packard traded at the level they closed at yesterday, the date was Jan. 31, 2005. George W. Bush had just started his second term as president. The Iraq War was still running hot. Apple’s most talked-about product was still the iPod, though iPhone rumors were already fairly common. And Dell still stood atop the world as the largest vendor of personal computers.
On that day, HP shares closed at $19.59. Yesterday, they closed at $19.55, marking what is officially a seven-year-low for the shares, a milepost I noticed was approaching last week. Of course it goes without saying that the drop amounts to a new 52-week low, as well.
HP shares continued their fall as markets opened in New York today. As I type, the shares are now trading at $19.36, down 18 cents, or nearly 1 percent.
It’s worth comparing 2012 to early 2005 by another number: HP’s long-term debt. The last time HP shares traded this low, it had $4.6 billion in long-term debt on its balance sheet. As of the quarter ended April 29, that figure has swelled by more than a factor of five, to $25.8 billion.
That figure by itself is alarming enough. But when HP’s debt situation is compared to its peers, the scale of the task ahead for CEO Meg Whitman becomes substantially more daunting.
HP’s net debt — the sum of its short-term and long-term debt minus cash on hand — amounts to slightly less than $21.8 billion, or about 56 percent of HP’s market capitalization as of yesterday’s closing price.
A June 11 research report by analyst Chris Whitmore of Deutsche Bank Securities called this figure out, and compared it to some of HP’s peers, including Dell, Apple and IBM. The graphic he prepared deserves a look, though it was created when HP’s net debt as a percentage of market cap was only 43 percent: Its share price has fallen that far since.
It’s an important figure, given the deteriorating conditions in the global economy, especially in Europe, where the ongoing sovereign debt crisis shows no sign of abating, and where HP historically does about 35 percent of its business, Whitmore argues. It’s a simple fact that companies with more cash and less debt on their balance sheets will probably have an easier time of it.