STOCKREPORTS

Hewlett-Packard Company

NYSE Symbol HWP In S&P 500

Recent Price 65.13 52 Wk Range 65.13 - 41.88

Yield 0.9% 12-Mo. P/E 24.7

Quantitative Evaluation: Outlook (1 Lowest - 5 Highest) 2 Fair Value 57.90 Risk MEDIUM Earn/Div Rank A
Technical Evaluation: BULLISH since 06/97 Rel. Strength Rank (1 Lowest - 99 Highest) 88 Insider Activity Neutral

Overview 02-JUL-97

Revenues are estimated to grow 11% during FY 97 (Oct.), primarily on strength expected in the second half of the year, as HWP benefits from easier year over year comparisons (versus difficult comparisons in the first half), and new product introductions. The company's recently introduced Windows NT workstations, and entry level and mid-range servers have been well received and we see further growth ahead. Gross margins are expected to remain under pressure, reflecting a greater proportion of less profitable PC and printer sales, and ongoing price competition in all of HWP's businesses. Nevertheless, HWP's efforts to control costs through improved supply-chain management have been encouraging. We expect HWP to devote considerable energy to controlling operating expenses, particularly as revenue and order growth slow from the heightened levels of the past few years.

Valuation 02-JUL-97

We recently downgraded HWP to neutral from accumulate. The company's first half revenue and order growth rates were well below expectations. The slower order rate resulted in our reduced expectations for revenue growth in the second half of the year, although these revenues will have easier year over year comparisons than those of the first half. Meanwhile, HWP has managed to improve gross margins and control expenses despite the slowdown. With favorable reviews of HWP's new products and several others likely to begin boosting revenues in FY 98, we continue to like the shares longer term. However, at 15X our FY 98 EPS of $3.55, we believe the shares will perform in line with the overall market.

Key Stock Statistics

Fiscal Year Ending Oct. 31

Business Summary 02-JUL-97

Hewlett-Packard's broad technology portfolio has served the company well: revenue growth has averaged nearly 25% during its past two fiscal years (Oct.). However, factors such as a strong U.S. dollar; greater competition in the printer market as well as in servers, workstations and personal computers (PCs); and seasonal weakness have resulted in a slowdown in recent quarters from these strong levels. However, HP's strong market position should secure its long term growth outlook. According to industry market researcher International Data Corp., HP was ranked No. 5 in U.S. PC shipments and No. 2 for global PC server shipments as of 1997's first quarter; and No. 2 for UNIX (traditional) workstations, based on global shipments in 1996.

HP's computer business (roughly 80% of revenues) include PCs, servers, workstations and printers. HP has a two-pronged strategy, with product offerings in competing UNIX and Windows NT markets. HP's computer lines include workstations and multiuser systems for both technical and commercial users; the HP Vectra series of IBM-compatible personal computers for businesses; and the HP Pavilion family of home computers. HP's newest 9000 family of workstations and servers run on the 64-bit- PA-8000 Precision Architecture reduced instruction set computing (PA-RISC) microprocessors. HP is also codeveloping Intel's next generation 64-bit Merced chip, available in 1999.

HP is well known for its position in the printer market with its popular HP LaserJet and DeskJet families. There has been aggressive pricing from Lexmark in the printer market, but HP still dominates, and has a series of new products planned. Printers and related products are roughly 35% of HP sales.

HP has begun consolidating its sales and channel management activities within its computer organization to realign the segment to focus on emerging markets, to better capitalize on their growth. Specifically, in the area of electronic commerce (and it has merged with Verifone in a $1.3 billion stock-for-stock deal to add to this capability) and other Internet-related opportunities. In fact, leveraging the power of the Internet will be the basis of its new products.

The company is well regarded for its service capabilities--it offers software programming services, network services, distributed systems services and data management services.

HP's diverse product line also include electronic test and measurement devices (voltmeters and multimeters, counters, oscilloscopes and logic analyzers, signal generators and specialized communications test equipment); medical electronic equipment (monitoring systems); chemical analysis (gas and liquid chromatographs, mass spectrometers, spectrophotometers); and electronic components (microwave semiconductor and optoelectronic devices). These lines account for some 20% of HP's revenues.

Capitalization

Long Term Debt: $2,495,000,000 (3/97).

Curr. Ratio	1.7	1.5	1.5	1.5	1.5	1.7	1.5	1.5	1.7	2.0
% LT Debt of Cap.	16.1	5.3	5.2	7.2	5.3	2.4	2.1	7.7	1.3	1.7
% Net Inc.of Revs.	6.7	7.7	6.4	5.8	5.4	5.2	5.6	7.0	8.3	8.0
% Ret. on Assets	9.9	11.1	8.8	7.7	6.9	6.4	6.8	9.4	11.0	8.9
% Ret. on Equity	20.5	22.4	17.3	14.7	11.9	10.9	12.4	16.5	17.9	13.7

Data as orig. reptd.; bef. results of disc. opers. and/or spec. items. Per share data adj. for stk. divs. as of ex-div. date. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked.

Office--3000 Hanover St., Palo Alto, CA 94304. Tel--(415) 857-1501. Website--http://www.hp.com Chrmn, Pres & CEO--L. E. Platt. EVP-Fin & CFO--R. P. Wayman. Secy--D. C. Nordlund. Investor Contact--Steve Beitler. Dirs--T. E. Everhart, J. B. Fery, S. Ginn, J.-P. G. Gimon, R. A. Hackborn, W. B. Hewlett, G. A. Keyworth II, D. M. Lawrence, P. F. Miller Jr., S. P. Orr, D. E. Petersen, L. E. Platt, R. P. Wayman. Transfer Agent & Registrar--Harris Trust & Savings Bank, Chicago. Incorporated--in California in 1947. Empl-- 114,600. S&P Analyst: Megan Graham Hackett

This report is for information purposes and should not be considered a solicitation to buy or sell any security. Neither S&P nor any other party guarantee its accuracy or make warranties regarding results from its usage. Redistribution is prohibited without written permission. Copyright © 1997