North America

Earnings Preview: HP Inc. Q4 2016 (HPQ)

By: Craig Bowles

Overview

HP Inc. (HPQ) is slated to report 4Q 2016 earnings after the close of trading on Tuesday, November 22nd. Results are typically released at approximately 4:05 p.m. ET and will be followed with a conference call at 5:30 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.

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Outliers & Strategy

  • Non-GAAP Earnings Per Share (EPS): Company guidance is for $0.34 to $0.37. The Street estimate is $0.36 (range $0.35 to $0.37). (Source: Yahoo! Finance) Consensus was $0.41 three months ago.
  • Revenues: Analysts expect $11.88 bln (range $11.53 bln to $12.35 bln).
  • Non-GAAP Earnings Per Share (EPS) Guidance for 1Q2017: The current Street estimate is $0.38 (range $0.34 to $0.41).
  • Non-GAAP Earnings Per Share (EPS) Guidance for FY2017: Company guidance is $1.55 to $1.65 (updated in October). The Street estimate is $1.60 (range $1.37 to $1.69).
  • Analysts view HPQ with 10 (12 last qtr) Buy, 15 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 414,650 shares over the last three months and 1,196,537 shares the previous qtr. (source: NASDAQ.com) The company authorized another $3 billion for stock buybacks and 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 5.29%. Options are pricing in an implied move of 5.78% off earnings.

Recent News

  • 10/14: HP will let go of another 3,000 to 4,000 workers. Expects $2.3 billion to $2.6 billion in free cash flow in the fiscal year ending in September of 2017 vs. consensus $2.65 billion, according to a post on Barron’s.com.
  • 10/12: PC shipments were down 5.7% in Q3, at 68.9 million, but HP saw a 2.3% year-over-year unit shipment increase, for a total of 14.06 million units, for 20.4% share of shipments, according to a post on Barron’s.com.
  • 10/07: Citigroup increased estimates for HP Inc. citing better than seasonal 3Q demand trends, especially in North America. HP is still rated Neutral because of the changes going on with its printing business and the supplies business that goes along with it, according to a post on Barron’s.com.
  • 09/12: Citigroup views the HP Inc. acquisition of Samsung Electronics‘ printing division as a positive but notes the secular growth challenges in the print business overall, according to a post on Barron’s.com.
  • 09/11: RBC Capital suggests the acquisition of Samsung Electronics‘ printing division for $1.05 billion could reduce its reliance on Canon from whom laser print technology is currently licensed, according to a post on Barron’s.com.
  • 08/25: 3-D printing is among the strategic areas that CEO Weisler believes can bring $155 billion in potential revenue upside to HP in coming years, according to a post on Barron’s.com.

Technical Review

HP, Inc. shares have shown upside since early February after the stock tested below $9. Resistance above $16 comes into play here if the pre-spinoff history is any indication. Point and figure technicians have a bullish price objective of $23.00. (Chart courtesy of StockCharts.com)

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Summary

More freedom for CEO Weisler is seen as a positive of the post-split corporate structure given the difficulties of the PC industry. Expectations are to return 50-75% of fiscal 2017 free cash flow to shareholders through dividends and share repurchases. Insider selling 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 three quarters. Estimize consensus for Non-GAAP EPS of $0.38 on revenue of $11.919 bln compares to analyst consensus of $0.36 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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