Hewlett-Packard: Dead Money...Still

Another disappointing earnings report has come and gone for Dow component Hewlett-Packard (NYSE:HPQ), reminding investors that for as talented as CEO Meg Whitman may be, she faces an uphill battle in restoring the company's lost luster.

At its nadir, the stock was down nearly five percent in Wednesday's after-hours session after the company said its fiscal third-quarter profit fell nine percent to $2 billion, or $1 per share. Revenue slid five percent to $29.7 billion. Analysts expected a profit of 98 cents per share on sales of $30.1 billion. The problem was not the results, it was the outlook.

California-based Hewlett-Packard, the world's largest maker of personal computers, cut is full-year profit guidance by three cents to $4.05 to $4.07 per share. Analysts expected $4.08 a share. Contending with another disappointment, Whitman was able to find some words in an effort to rally the troops; the troops being wary Hewlett-Packard shareholders.

"HP is still in the early stages of a multi-year turnaround, and we're making decent progress despite the headwinds," said Whitman in a statement. "During the quarter we took important steps to focus on strategic priorities, manage costs, drive needed organizational change, and improve the balance sheet. We continue to deliver on what we say we will do."

Still, the road to rejuvenation for Hewlett-Packard shares is littered with obstacles.

Not Necessarily a Value Stock As many investors know, there is a difference between a value stock and a value trap. A value stock gives investors one or multiple compelling reasons to purchase the shares. Since HP is by no means a growth stock, it needs to have at least a good long-term track record of steady share price increases. That is simply not the case.

Over the past five years, shares of Hewlett-Packard have plunged 59.3 percent. Over that same time, bitter rival Oracle (NASDAQ:ORCL) has added 58.6 percent and fellow Dow component IBM (NYSE:IBM) has surged 75.1 percent. Microsoft's (NASDAQ:MSFT) 6.4 percent gain may not sound like much over five years, but it is far better than what Hewlett-Packard has done. Investors that do not like stock-picking could have avoided the HP disaster while gaining almost 19 percent with the Technology Select Sector SPDR (NYSE:XLK).

To its credit, Hewlett-Packard's dividend has risen by 65 percent since early 2011 and if the stock opens below $18.50 today, its yield will be in the area of three percent. However, Hewlett-Packard has a long way to go to be considered a dividend stock. IBM is a serial dividend raiser. It feels like IBM raises its dividend like clockwork every year. Other old line tech companies such as Microsoft and Intel (NASDAQ:INTC) are going down a similar path.

Hewlett-Packard is not IBM or Microsoft. HP's 2011 dividend increase was its first since 1998. Simply put, HPQ's dividend track record does not make it a "dividend stock." Rather, it is just a stock that pays a dividend.

Cut, Cut, Cut Another major obstacle that Whitman faces is that Wall Street and Hewlett-Packard investors loved former CEO Mark Hurd. Hurd departed the company under the most dubious of circumstances, but the stock performed well during his tenure.

One reason for that was Hurd never shied away from job cuts. From the time Hurd announced 14,500 layoffs in July 2005 to his last day at the company, HP shares gained almost 86 percent.

Whitman appears to be hoping for a sequel. In the previous quarter, 27,000 job reductions were announced. The company expects to save $3 billion to $3.5 billion by the end of 2014 as a result. Assuming $3.5 billion in savings, that is nearly 11 percent of Hewlett-Packard's closing market capitalization on Wednesday.

The problem is workforce reductions only help on the bottom line, but it is top-line growth that HP so desperately needs to restore investors' faith in the company and the stock. Rivals are eating HP's lunch and no amount of job cuts will change that.