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UPDATE 1-HP gets positive reviews after revenue beat, shares jump

Wednesday, 27 Nov 2013 | 9:57 AM ET

(Adds analysts quotes, details, updates shares)

Nov 27 (Reuters) - Signs that Hewlett-Packard Co's turnaround plan is finally yielding results put the company's stock on track for its biggest one-day jump in a year on Wednesday.

HP shares rose 9 percent to $27.33 in early trading, after at least one brokerage raised its rating on the PC maker's shares and another nine raised their price targets.

Expectations were low for HP's fourth quarter following a disappointing third quarter and after rivals IBM and Cisco Systems Inc reported poor results.

But HP surprised on Tuesday by reporting stronger-than-expected revenue due to growth in its enterprise group, which supplies servers, storage and networking products to business.

HP's enterprise sales rose 2 percent compared with a year earlier but 12 percent compared with the third quarter.

Overall revenue for the fourth quarter was $29.1 billion, beating the average analyst forecast of $27.9 billion, according to Thomson Reuters I/B/E/S.

HP also maintained its full-year earnings forecast, which J.P. Morgan Securities analyst Mark Moskowitz said was "more than plenty good after Cisco's big disappointment."

Moskowitz, who raised its price target to $30 from $29, said HP's comments on PCs, printing and the enterprise group could suggest a potential bottoming in the company's model, which could attract value-based and long-only investors.

The company, which has been moving away from a declining PC industry, reported a smaller-than-expected drop in PC sales.

"In short, HP didn't guide down for 2014 and that is quite positive so far versus many in 'old tech'," Barclays analyst Ben Reitzes said in a research note.

Reitzes raised his price target to $28 from $26.

Some analysts had expressed concern that a slowdown in China would hurt HP. Cisco had warned of weakness in China, while IBM's sales in China declined in the latest quarter.

But Reitzes said HP seems to be managing volatility in emerging markets far better than its peers, noting revenue in the Asia Pacific region grew 4 percent in the quarter.

Growth in the region was helped by a contract to supply laptops to the Indian state of Uttar Pradesh, which BMO Capital Markets valued at about $450 million. HP has not disclosed the value of the contract.

Chief Executive Meg Whitman, who took the helm a little more than a year ago, is trying to bring HP back on the growth path by cutting jobs and focusing on businesses with longer-term potential, such as enterprise computing services.

"HP is cutting costs and headcount, but we believe challenges remain structural, with the company still tuned to selling high volumes of relatively low-value add products/services, likely keeping margins under pressure," Evercore analyst Rob Cihra said in a note.

HP's key operating margin slipped to 9 percent in the quarter from 10.4 percent a year earlier.

Still, Cihra raised his rating on HP stock to "equal-weight" from "underweight", citing an improving balance sheet and a moderation in the decline of its PC and printer businesses. Evercore raised its price target to $25 from $20.

Among the nine others raising price targets, three increased to $30. Credit Suisse was the biggest mover, with a price target increase to $30 from $25.

HP shares hit a 12-month high of $27.77 on Aug. 2. The stock hit its 12-month low of $12.22 in November last year.

(Reporting by Neha Alawadhi in Bangalore; Editing by Ted Kerr)

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