North America

Earnings Preview: HP Inc. Q2 2017 (HPQ)

By: Craig Bowles

Overview

HP Inc. (HPQ) is slated to report 2Q 2017 earnings after the close of trading on Wednesday, May 24th. Results are typically released at approximately 4:05 p.m. ET and will be followed with a conference call at 5:00 p.m. available through HP Investor Relations.  Hewlett-Packard’s personal computer and printer business now operates under the name, HP Inc. Hewlett-Packard’s commercial tech products operates as a separate entity called Hewlett-Packard Enterprise (HPE). HP Inc. remains a component of the Standard and Poor’s 500 Index, with results potentially impacting index futures.

Outliers & Strategy

  • Non-GAAP Earnings Per Share (EPS): Company guidance is for $0.37 to $0.40. The Street estimate is $0.39 (range $0.38 to $0.40). (Source: Yahoo! Finance) Consensus was $0.39 three months ago.
  • Revenues: Analysts expect a 2.5% y/y increase to $11.88 bln (range $11.60 bln to $12.06 bln).
  • Non-GAAP Earnings Per Share (EPS) Guidance for 3Q2017: The current Street estimate is $0.42 (range $0.39 to $0.48).
  • Non-GAAP Earnings Per Share (EPS) Guidance for FY2017: Company guidance is $1.55 to $1.65. The Street estimate is $1.62.
  • Analysts view HPQ with 12 (9 last qtr) Buy, 8 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 1,195,096 shares over the last three months and 2,667,604 shares the past year. (source: NASDAQ.com) In October 2016, another $3 billion was authorized for stock buybacks with plans to return $1-2 billion to shareholders in FY2017.
  • HP Inc. results could impact other computer hardware enterprises, such as IBM (IBM), EMC Corp. (EMC), and Seagate (STX).
  • HP Inc. shares have a 1-day average price change on earnings of 5.48%. Options are pricing in an implied move of 5.87% off earnings.

Recent News

  • 04/19: Barclays upgraded HP Inc. to Overweight from Equal Weight citing that growth in IT spending is turning positive, and that HP could be a prime beneficiary. Global IT spending had been expected to decline 3% this year but now looks like it could rise 1.7%, according to a post on Barron’s.com.
  • 04/12: Morgan Stanley reiterated an Overweight on HP Inc. after data from IDC that showed the firm regained the crown of top PC vendor from rival Levono Group in Q1, according to a post on Barron’s.com.
  • 04/11: Conflicting data? IDC said PC sales rose 0.6% from the first quarter of last year, the first growth for the market in five years, at 60.3 million. Gartner said sales fell 2.4%, and that shipments fell below 63 million for the first time since 2007, at 62.2 million, according to a post on Barron’s.com.
  • 03/06: Wells Fargo upgraded HP to Outperform from Market Perform citing HP’s core business is stabilizing as its growth businesses are reaching scale, and the Street’s estimates may not be fully appreciating the potential for supplies growth in the second half of the fiscal year, according to a post on Barron’s.com.

Technical Review

HP, Inc. shares have trended higher for a year since testing below $9 in early 2016 and are showing relative strength with the overall market again testing below the 50-day MA for the third time in as many months. Pre-spinoff history found resistance at $20. Point and figure technicians have a bullish price objective of $23.00. (Chart courtesy of StockCharts.com)

Summary

HP Inc. replaced Levono Group as the top PC vendor. Analysts had thought CEO Weisler would shine when given freedom from the spin-off but what a difference a year makes! Overall Q1 PC sales and shipments either improved in Q1 or worsened, depending on whether you ask IDC or Gartner. HP’s expectations are to return 50-75% of fiscal 2017 free cash flow to shareholders through dividends and share repurchases. Analysts have become more bullish. Insider selling ramped up further the past three months and is a little troubling given the company’s efforts on behalf of shareholders. The company beaten consensus estimates by an average of 2c over the past four quarters. Estimize consensus for Non-GAAP EPS of $0.40 on revenue of $12.107 bln compares to analyst consensus of $0.39 on revenue of $11.88 bln. Guidance for next quarter and any change in expectations for FY2017 would be of interest.

 

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