Shares of Hewlett-Packard (HP) rose as much as 5% yesterday as investors cheered plans for the company's soon-to-be separated but struggling PC and printer business to return more capital to shareholders than many had expected.
HP, which has struggled for years in a declining PC market, also said it would cut up to 33 300 jobs over the next three years, mostly in its enterprise business.
HP, which will house the PC and printer business when HP is split up on 1 November, is expected to generate free cash flow of $2.5 billion to $2.8 billion in fiscal 2016 and return up to 75% to shareholders, the company said on Tuesday.
It added that HP Enterprise (HPE) - the fast-growing business that will sell computer servers, networking gear and data storage to businesses - will return "at least 50%" of its free cash flow of $2 billion to $2.2 billion.
The planned capital return from HPE initially disappointed investors, who pushed down HP's shares 1.4% in extended trading on Tuesday.
HP's shares were 3.7% higher at $28.12 in early afternoon trading yesterday after hitting a high of $28.54.
Up to Tuesday's close, the stock had fallen by a third this year.
"I think investors will gravitate to HP (over HPE) because they have a leadership position in PCs and print, and the free-cash flow model is very strong," says Jayson Noland, an analyst at Robert W Baird.
Noland has a "hold" rating on HP's stock, with an unchanged price target of $38.
UBS, which kept its "buy" rating and $36 price target, says the PC business may turn out to be the better of the two.
"Longer term, we are impressed by HP's potential to take share from copiers and become the 3D printing leader," UBS analysts said in a note.
However, at least three brokerages cut their price targets on HP shares, including JP Morgan Securities, which cut its target to $31 from $33.
"HP's FY 16 outlook was better than we had modelled, but this was offset by weaker HP Enterprise guidance," the brokerage said.
Of 29 brokerages covering HP, 16 rate the stock "buy" or higher, while 12 rate it "hold", according to Thomson Reuters data. Only one undisclosed brokerage rates the stock a "sell".
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