Hewlett-Packard Stock Has 25% Upside: Pro

HP Hewlett-Packard
Adam Jeffery | CNBC

Hewlett-Packard shares have had a tremendous 12 months, climbing 30 percent and outperforming the S&P 500, which is up 22 percent in the same period. While that may look like cause to turn more cautious on the stock, Citigroup sees further upside to come.

Citi analyst Jim Suva upgraded the company Wednesday to buy from sell, on the results of a chief information officer survey that suggests increased corporate spending on HP services, which makes up a little over a fifth of the company's sales.

Moreover, he said that the rest of Wall Street may be underestimating the benefits of HP's cost cutting and that negative earnings revisions may finally be behind the company.

"We anticipate that HP's earnings revisions are now likely to start increasing in 2014 for the first time in nine quarters," Suva wrote in a research note.

He concedes that this call might get some pushback, as the company's PC sales could be worse than anticipated and the benefits of higher spending on services may be slow to materialize or only temporary.

Its multiple could also expand from just seven times fiscal 2012 earnings if HP can begin to demonstrate earnings growth again, Suva noted.

His $32 price target is based on a price-to-earnings multiple of eight times fiscal 2015 earnings of $4 per share.

While that's below HP's 10-year average of 11 times, Suva writes,"We believe the discount to 8 times is warranted as the company is in the middle of a turnaround and ... a slight valuation increase from just under 7 times to 8 times is reasonable as we believe EPS estimates and investor sentiment will increase."

Getting to that price target implies nearly 25 percent upside from current levels.

By CNBC's Justin Menza. Follow him on Twitter @JustinMenza.

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Citigroup owns a position in HP debt securities and has received compensation for both investment banking and noninvestment banking services over the past 12 months. It also expects to receive or intends to seek investment banking business from HP in the next three months.