Comparing HPQ valuation with DELL

Hewlett Packard Company (HPQ) closed at $43.25 on November 22nd, 2010.  During the past year, HPQ has traded in a range of $37.32 and $54.75.

After the close, HPQ announced their 4th Quarter and fiscal 2010 results.  Since I just looked at DELL, I want to compare the results and see if DELL has a lower valuation.

Cash Equivalents 11B
Debt 22.3B
Service/Warranty Liabilities 6.7B
Net Debt 17B

Market Cap 98.1B
Enterprise Value 127.1B

Operating Cash Flow (after subtracting Stock Compensation) 11.25B
CapEx 4.15B
Free Cash Flow 7.1B

Using the conservative FCF number of 7.1B, the market is valuing HPQ at 16.3x FCF, significantly higher then DELL at 8.5x FCF.  While the valuation is higher, there are some factors that are impacting FCF.  Just like DELL, HPQ Account and Financing Receivables increased by over 2B, however HPQ does not break out the difference between the two items.  There were some restructuring charges of approximately 1.4B due to recent acquisitions and resulting layoffs.  Also, CapEx looks higher than usual due to a large number of acquisitions.  Adding up all these numbers, it is possible that a more natural FCF is closer to 9B - 10B and FCF valuation would be closer to 12x.

While HPQ is certainly not cheap, it is also not so expensive that I would be interested in shorting.  No position in HPQ at this time.