David Einhorn’s Greenlight Capital has made a big bet on HP, better known as Hewlett Packard.
In its second-quarter client letter, obtained by Institutional Investor, the value-driven hedge fund listed the stock among its five largest disclosed long positions. This is the first time HP has cracked the fund’s elite group, which currently includes long-held major positions Brighthouse Financial, the annuities specialist; coal producer CONSOL Energy; homebuilding and land development company Green Brick Partners; and Belgian chemicals company Solvay.
Greenlight initiated a medium-size position in HP in the first quarter when the seller of computers, printers, and related products and supplies ranked as the firm’s 14th-largest U.S.-listed long position, according to the firm’s first-quarter 13F filing. Since then, the hedge fund firm boosted the position, catapulting it into its top-five holdings. The exact number of shares Greenlight now owns will be revealed in the second-quarter 13F document, expected late next week.
In the second-quarter letter, Greenlight singled out HP as one of its “four material winners” in the long portfolio in the second quarter, along with CONSOL, IT infrastructure services provider Kyndryl Holdings, and Solvay.
Discussing HP, Greenlight noted that after seven quarters of decline, PC sales “turned marginally positive” during the second quarter. “The industry appears to be in the early stages of an up cycle, perhaps to be enhanced by recently launched AI-enabled PCs that are expected to ramp up over the next several quarters,” the firm explained.
In the prior quarter’s letter, Greenlight said HP stands to benefit from AI, which it asserted was not reflected in the stock price. The firm said at the time it had initially paid an average price of $30.76 per share, or nine times current-year earnings estimates.
“Recent results reflect a two-and-a-half-year cyclical downturn in demand for computers, which followed a mini-boom driven by Covid and related demand for equipment to work-from-home,” Greenlight wrote in the letter. “We believe that we are, at a minimum, on the cusp of a normal PC refresh cycle, which should drive earnings above estimates.”
The firm said HP had committed to returning 100 percent of free cash flow to shareholders through buybacks and dividends. It also noted at the time that the stock had a 3.6 percent dividend yield. Greenlight estimated the company had the capacity to buy back 25 to 30 percent of outstanding shares over the next three years.
“While we have spoken with experts [who] are divided between being enthusiastic and skeptical of an AI PC cycle, we don’t believe any of the optimism is currently reflected in the share price,” Greenlight stressed in the first-quarter letter.
HP closed at $32.72 on Tuesday.