RBC Capital Keeps Hewlett-Packard (HPQ) at 'Sector Perform' Following Analyst Day; Highlights Key Points
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RBC Capital affirms Hewlett-Packard (NYSE: HPQ) at Sector Perform with a price target of $16 following the company's recent Analyst Day.
The firm noted the following key points:
- FY17 revenue should decline y/y although at moderated levels from FY16's decline;
- management continues to target 50–75% of FCF returned to shareholders and expects to be at the higher end of range in FY17 (+7% y/y dividend increase and incremental $3B in share repurchase authorization authorized for FY17 for a total authorization of ~$4B);
- guiding to flattish EPS ($1.55–1.65) for FY17;
- HPQ sees FY17 FCF of $2.3–2.6B (~$200M in FCF headwinds from restructuring and ~$20M from Samsung printing integration);
- management expects cash cycle days to end at ~-25 days for FY16 (~10-day improvement from original guide), with this metric to remain flat y/y in FY17; and
- long-term financial targets of revenue outpacing target markets, 8–10% operating margins, and cash flow to track in line with net income.
HPQ continues to expect revenue growth to outperform its target markets, operating margin of 8–10%, cash flow to track in line with earnings, and a capital allocation framework of returning 50–75% of FCF to shareholders (dividends to grow in line with net income). The company expects 3,000–4,000 employees to exit the company by FY19, with 1,500–2,500 departing the company in FY17. HPQ expects current labor and non-labor cost actions to enable $200–300M in annual cost savings by CY20, RBC said.
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