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HP Inc. (HPQ) Poised for Long-Term Growth Despite Risks
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A successful portfolio manager is aware of the fact that adding well performing stocks at the right time is of vital importance. Indicators of a stock’s bullish run include a rise in its share price and strong fundamentals.
One such stock that investors need to hold on to right now is HP Inc. (HPQ - Free Report) . Though there are a few concerns, these are short lived and the stock has the potential to perform well in the long run.
HP’s share price movement has been quite favorable. Over the past one year, its shares have gained 58.60%, compared with just 34.68% increase recorded by the Zacks categorized Computer-Mini Computers industry.
What’s Driving HP?
HP reported better-than-expected first-quarter fiscal 2017 results driven mainly by strength in Personal System and execution of restructuring actions and productivity initiatives.
The company reported non-GAAP earnings per share of 38 cents per share, which came ahead of the Zacks Consensus Estimate by a penny. Also, earnings increased from the year-ago figure of 36 cents per share.
Notably, Hewlett-Packard Company split itself into two standalone companies — HP Inc. and Hewlett-Packard Enterprise (HPE - Free Report) — effective Nov 1, 2015. Post the split, its PC and printer business has been operating as HP Inc., while Hewlett-Packard Enterprise specializes in commercial tech products.
HP’s total revenue increased 3.6% year over year to $12.684 billion and came ahead of the Zacks Consensus Estimate of $11.774 billion. The better-than-expected top-line performance was driven mainly by strength in the Personal System segment and outperformance of newly launched products.
We are impressed by the performance of HP Inc.’s PC segment, wherein the year-over-year increase was witnessed mainly due to growth in Commercial and Consumer revenues.
HP’s efforts to turn around the business have been commendable. The company is working on product innovation and differentiation as well as enhancing the capabilities of the printing business to stabilize the top line.
Furthermore, looking at the data compiled by two independent research firms – Gartner and International Data Corporation – we believe that the downtrend in PC shipments showed signs of stabilization in fourth-quarter 2016, compared with the previous quarters.
Notably, for HP, this was the third consecutive quarter of year-over-year shipment growth following five back-to-back quarters of underperformance. The company witnessed a 4.3% increase in PC shipments and raised its market share to 20.4% from 18.8% in the year-ago quarter. We believe that the company’s ongoing restructuring initiatives will result in lower costs, while enhancing both productivity and profitability.
The stock’s long-term earnings per share growth rate is 2.57% and it carries a VGM Style Score of “A.” The company also has an average positive surprise of 3.63%.
Moreover, from a valuation perspective, the stock looks very attractive as it currently trades significantly lower than the industry average based on a forward earnings estimate. This signifies huge upward potential. HP currently trades at a forward P/E of 310.81x compared with the industry group average of 33.60x.
Risks Remain
The company provided a not-so-encouraging forthcoming and fiscal 2017 earnings guidance. For the fiscal second quarter, HP projects non-GAAP earnings in a range of 37 cents to 40 cents per share (mid-point: 38.5 cents). The Zacks Consensus Estimate is pegged at 39 cents.
HP reiterated its fiscal 2017 earnings guidance. The company continues to anticipate non-GAAP earnings per share in a band of $1.55–$1.65 (mid-point: $1.6). The Zacks Consensus Estimate stands at $1.61 per share.
Also, macroeconomic challenges and tepid IT spending remain near-term concerns. Competition from the likes of International Business Machines (IBM - Free Report) and Apple (AAPL - Free Report) add to its woes.
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HP Inc. (HPQ) Poised for Long-Term Growth Despite Risks
A successful portfolio manager is aware of the fact that adding well performing stocks at the right time is of vital importance. Indicators of a stock’s bullish run include a rise in its share price and strong fundamentals.
One such stock that investors need to hold on to right now is HP Inc. (HPQ - Free Report) . Though there are a few concerns, these are short lived and the stock has the potential to perform well in the long run.
HP’s share price movement has been quite favorable. Over the past one year, its shares have gained 58.60%, compared with just 34.68% increase recorded by the Zacks categorized Computer-Mini Computers industry.
What’s Driving HP?
HP reported better-than-expected first-quarter fiscal 2017 results driven mainly by strength in Personal System and execution of restructuring actions and productivity initiatives.
The company reported non-GAAP earnings per share of 38 cents per share, which came ahead of the Zacks Consensus Estimate by a penny. Also, earnings increased from the year-ago figure of 36 cents per share.
Notably, Hewlett-Packard Company split itself into two standalone companies — HP Inc. and Hewlett-Packard Enterprise (HPE - Free Report) — effective Nov 1, 2015. Post the split, its PC and printer business has been operating as HP Inc., while Hewlett-Packard Enterprise specializes in commercial tech products.
HP’s total revenue increased 3.6% year over year to $12.684 billion and came ahead of the Zacks Consensus Estimate of $11.774 billion. The better-than-expected top-line performance was driven mainly by strength in the Personal System segment and outperformance of newly launched products.
We are impressed by the performance of HP Inc.’s PC segment, wherein the year-over-year increase was witnessed mainly due to growth in Commercial and Consumer revenues.
HP’s efforts to turn around the business have been commendable. The company is working on product innovation and differentiation as well as enhancing the capabilities of the printing business to stabilize the top line.
Furthermore, looking at the data compiled by two independent research firms – Gartner and International Data Corporation – we believe that the downtrend in PC shipments showed signs of stabilization in fourth-quarter 2016, compared with the previous quarters.
Notably, for HP, this was the third consecutive quarter of year-over-year shipment growth following five back-to-back quarters of underperformance. The company witnessed a 4.3% increase in PC shipments and raised its market share to 20.4% from 18.8% in the year-ago quarter. We believe that the company’s ongoing restructuring initiatives will result in lower costs, while enhancing both productivity and profitability.
The stock’s long-term earnings per share growth rate is 2.57% and it carries a VGM Style Score of “A.” The company also has an average positive surprise of 3.63%.
Moreover, from a valuation perspective, the stock looks very attractive as it currently trades significantly lower than the industry average based on a forward earnings estimate. This signifies huge upward potential. HP currently trades at a forward P/E of 310.81x compared with the industry group average of 33.60x.
Risks Remain
The company provided a not-so-encouraging forthcoming and fiscal 2017 earnings guidance. For the fiscal second quarter, HP projects non-GAAP earnings in a range of 37 cents to 40 cents per share (mid-point: 38.5 cents). The Zacks Consensus Estimate is pegged at 39 cents.
HP reiterated its fiscal 2017 earnings guidance. The company continues to anticipate non-GAAP earnings per share in a band of $1.55–$1.65 (mid-point: $1.6). The Zacks Consensus Estimate stands at $1.61 per share.
Also, macroeconomic challenges and tepid IT spending remain near-term concerns. Competition from the likes of International Business Machines (IBM - Free Report) and Apple (AAPL - Free Report) add to its woes.
HP has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>