Jim Chanos Gets Another Huge Score

Jim ChanosJames Chanos speaks at the 2011 New-York Historical Society History Makers Awards at The Waldorf Astoria Starlight Roof on November 7, 2011 in New York City.

Photo: Andy Kropa/Getty Images

Hewlett Packard is getting killed right now due to weak earnings and a big charge, and that’s a big score for famed short-seller, Jim Chanos.Go back to July. That’s when Chanos gave a presentation at the CNBC Institutional Investor Delivering Alpha Conference about “the ultimate value trap”…HP.

Here’s how he explained it then:

“Hewlett Packard presents the ultimate value trap for investors,” he said.

People who are into will tell you the stock is cheap, there’s great free cash flow, have you look at their buy-backs etc.

As you look at the revenue stream, though, its been flat over a number of years. So has its cash flow. The company is relying on the $37 billion of acquisitions they’ve done over the last couple of years to look healthy.

“When something looks cheap be careful, there could be a reason it’s cheap…” Chanos said, and then added, “This company is destroying its value. Typically acquisitions destroy value.”

It’s one of those acquisitions that’s hurting the company right now. HP reported earnings that beat expectations yesterday, but also disclosed that it was facing a one-time $8.8 billion charge.

It’s mostly related to the company’s acquisition of Autonomy software unit.

From CNBC:

While avoiding calling it fraud, Hewlett-Packard said there was “serious accounting improprieties, disclosure failures, and outright misrepresentations at Autonomy Corp.” that occurred prior to its acquisition of Autonomy and was discovered by a nearly seven-month-long internal investigation.

The company has started an internal investigation into the matter.

Check out Chanos’ presentation on value traps (he mentions HP) right here>

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