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Q4 Preview: Analysts' Might Be Overly Bearish on H-P (HPQ) into Results, Outlook

November 21, 2011 1:56 PM EST
Get Alerts HPQ Hot Sheet
Price: $29.94 -1.58%

Rating Summary:
    16 Buy, 20 Hold, 2 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 20 | Down: 14 | New: 22
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Hewlett-Packard Company (NYSE: HPQ) shares are lower Monday ahead of fourth-quarter numbers, expected after the market close this afternoon. Click here to go to H-P's IR site for the webcast, which starts at 5:00pm EST.

The Street is looking for earnings of $1.13 per share in revenue of $32.05 billion. HP reported earnings of $1.33 per share in the same period last year.

H-P shares dropped 24 percent in the quarter but are up about a percent since the end of the quarter. H-P has traded within a range of $21.50 to $49.39 over the last 52-week time frame.

This will be Meg Whitman's first presentation as CEO of the company. Whitman took the helm in the middle of September, after the ousting of former CEO Leo Apotheker.

Data from Bloomberg has 12 analysts at Buy, 19 with a Hold, and six with a Sell rating. The analyst price target average is $30, with a low of $20 and high of $37.

Analyst Comments
  • Goldman Sachs is modeling for earnings of $1.14 per share with revenue of $31.77 billion. Goldman said investors are more likely to be interested in what Whitman will say on the call, rather than numbers in the quarter. Goldman is looking for first-quarter 2012 estimates to come in significantly below views, with recent Thai flooding on the forefront of investors' minds.

    For Personal Services Group (PSG), Goldman sees revenue of $9.48 billion and operating margins of 4.8% for the October quarter. "After spending much of the quarter with the PSG segment in limbo, we believe that HP’s ultimate decision to keep the PSG business resulted in a significant effort to stabilize market share," according to Goldman

    For its Imaging and Printing Group (IPG), tepid demand will hamper this segments results. Goldman's forecast calls for $6.78 billion in revs with operating margins of 15 percent.

    On Enterprise Servers, Storage, and Networking, Goldman is looking for revenue of $5.60 billion and operating margins of 13.7 percent, saying, "H-P previously warned that it was seeing slower economic growth impact portions of the ESSN segment and we expect this to continue going forward. In addition, like other server OEMs, we believe HP continues to grapple with the encroachment of white box vendors on the industry standard server market, which could compress margins in FY2012."

  • JPMorgan expects earnings of $1.12 per share and revenue of $31.85 billion, saying "the combination of macro, secular, and company-specific factors stand to limit the stock’s outperformance potential. The recent stepping stones to a turnaround (i.e., new CEO and keeping the PC business) have been positive but are not big enough to firmly steer the model to above-peer revenue and earnings growth. In the near term, we are concerned about potential hits to the model from 1) efforts to protect the PC business, 2) slowing demand in printers, 3) the impact of the Oracle-Itanium flap on servers, and 4) the ongoing services revamp."

    JPMorgan sees H-P missing estimates in the fourth quarter, not expecting too much in the way of downside support. Specifically, JPMorgan is looking for anemic growth in printing and heightened competition making storage growth tough.

    Looking ahead, JPMorgan said it believes "Whitman’s focus on 4Q results and the Autonomy integration indicate other major strategic changes are likely deferred. As a result, we do not think a kitchen sink reset to the operating outlook, which would provide the company more wiggle room, is a near-term event."

  • Deutsche Bank is modeling for earnings of $1.12 per share and revenue of $32.7 billion. Challenges for the company into the numbers include: integrating Autonomy, revitalizing the Services business and crafting growth strategies for PCs/ tablets and printers. Deutsche believes the decision to keep the PSG group is positive, but will negatively impact earnings in the quarter as new challenges surface.

    Like Goldman and JPMorgan, Deutsche is expecting cut guidance and fiscal 2012 earnings closer to $4.25 per share. Specifically, Deutsche said it believes "soft Consumer PC demand trends /lack of a tablet strategy, re-investment / margin pressure in Services performance and printing demand to pressure earnings in 2012."
Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out H-P's past performance at Streetinsider's H-P Income Statement.


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