How will the Hewlett-Packard scandal play out in the stock market?

The short answer is poorly. HP (HPQ) stock plummeted more than 7% on Monday, as investors wrestled with new uncertainty about the company's management and strategy.

Late Friday, HP announced that its chief executive officer Mark Hurd had resigned following a sexual harassment allegation made by a former HP contractor.

A company investigation found that Hurd didn t violate the company s sexual harassment policy, but the firm uncovered inaccurate expense reports submitted by Hurd that concealed his relationship with Jodie Fisher, a contracted event planner whom he paid about $20,000 for reasons that appear unclear, according to The Wall Street Journal. Hurd agreed to pay back the money to HP.

With Hurd no longer at the helm, his successor remains unclear. That uncertainty raised questions about the company s strategy and left some investors scrambling.

HP s board appointed chief financial officer Cathie Lesjak as interim CEO and created a search committee to select Hurd s official replacement.

Although Ms. Lesjak expressed confidence in the company s ability to continue executing during the search period we believe any sudden transition at the CEO level usually creates a good period of uncertainty, Abhey Lamba, an analyst at International Strategy & Investment Group, wrote in a report. While in the near term, the CEO transition could create an overhang on the stock, we expect the company to continue delivering on its immediate targets.

HP released its preliminary fiscal third-quarter earnings report early with its statement of Hurd s resignation Friday. (Official results are scheduled to be released Aug. 19.) The company's early results show revenue climbed to $30.7 billion, up 11% over the year-ago quarter. HP projected as much as $32.7 billion in revenue for its fourth quarter.

Hurd had presided over a prosperous turnaround at HP. Since his appointment as CEO, which began Sept. 22 2006, the company s stock had climbed about 33% before Monday's decline.

Shareholders can expect HP s stock to bounce back slowly and "continue to benefit from the snapback in IT," Louis Miscioscia, an analyst at Collins Stewart, wrote in a report. He added that unlike many of HP's competitors, including Dell (DELL), the company is no longer in a turnaround situation, which suggests less risk.

HP's diverse product lines also should help the company in the short term, Lamba wrote. He added that, in the long term, the company s biggest risk could be its selection of its new CEO.

In addition, shareholders should watch for whether the consumer-led recovery begins to lose steam and monitor challenging acquisitions and the enterprise IT spending recovery, Miscioscia wrote.