North America

Earnings Preview: HP Inc. Q3 2017 (HPQ)

By: Craig Bowles

Overview

HP Inc. (HPQ) is slated to report 3Q 2017 earnings after the close of trading on Wednesday, August 23rd. 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 $0.40 to $0.43. The Street estimate is $0.42. (Source: Yahoo! Finance) Consensus was $0.42 three months ago, as well.
  • Revenues: Analysts expect a 3.2% y/y increase to $12.27 bln (range $11.85 bln to $12.94 bln).
  • Non-GAAP Earnings Per Share (EPS) Guidance for 3Q2017: The current Street estimate is $0.44 (range $0.40 to $0.47).
  • Non-GAAP Earnings Per Share (EPS) Guidance for FY2017: Company guidance is $1.59 to $1.66. The Street estimate is $1.64.
  • Price/Earnings of 12.9 compares to a 5-year average of 9.6, Price/Sales of 0.7 compares to a 5-year average of 0.4, and Price/Cash Flow of 10.9 compares to a 5-year average of 5.3. (historical data includes per-spinoff valuations)
  • Analysts view HPQ with 12 Buy, 8 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 1,868,782 shares over the last three months and 4,209,296 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 5.25%. Options are pricing in an implied move of 5.65% off earnings.

Recent News

  • 08/17: Tech analyst Patrick Moorhead see’s HP’s re-dedicating itself to deliver premium consumer experiences starting to payoff—particularly with its Spectre and Envy sub-brands. The new Spectre x360 15” is the latest example, according to a post on Forbes.com.
  • 08/16: HP’s five-year Shutterfly (SFLY) deal highlights growth and transformation of HP’s digital printing and graphics business.
  • 07/26: Hewlett Packard Enterprise CEO Meg Whitman is stepping down from HP’s board.
  • 07/12: Worldwide PC shipments in Q2 were down 4.3% on the prior year, according to Gartner. This is the 11th straight quarter of declining shipments and the lowest since 2007. HP Inc. maintained its top spot in global sales, with 20.8% market share, up from 19.2% a year earlier, according to a post on Barron’s.com.

Technical Review

HP, Inc. shares trended higher since testing below $9 in early 2016 and tested above $19 where May found resistance. Pre-spinoff history found resistance at $20, so a similar level. Point and figure technicians have a bullish price objective of $23.00. A third leg up similar to the move from $12 to $15.50 suggests $22.50. (Chart courtesy of StockCharts.com)

Summary

HP Inc. remains ahead of Levono Group as the top PC vendor but global PC shipments have declined for nearly three years back to 2007 levels. Analysts have been right in their prediction that CEO Weisler would shine with more freedom following the spin-off two years ago. HP’s expectations are to return 50-75% of fiscal 2017 free cash flow to shareholders through dividends and share repurchases. Analysts still show more bullishness. Insider selling ramped up further the past six 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 $0.44 on revenue of $12.227 bln compares to analyst consensus of $0.42 on revenue of $12.27 bln. Guidance for next quarter and any change in expectations for FY2017 would be of interest.

 

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