HP (HPQ) Narrows FY EPS Guidance, Citi Still Prefers Dell (DELL)

June 1, 2022 7:03 AM EDT
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HP (NYSE: HPQ) narrowed its adjusted EPS outlook for the full year, while its shares remained slightly up in premarket trading.

The technology company reported Q2 adjusted EPS of $1.08, topping the consensus projection of $1.05 per share. Net revenue came in at $16.5 billion, also above the estimates of $16.14 billion.

For Q3, HP expects adjusted EPS in the range of $1.03 to $1.08, while analysts were looking for $1.04 per share. The company expects FY adjusted EPS in the range of $4.24 to $4.38, compared to the previous forecast of $4.18 to $4.38, while analysts were estimating $4.26 per share. HPQ expects FY free cash flow of at least $4.5 billion, almost in line with the estimates of $4.48 billion.

"Collectively, our key growth businesses grew double digits and drove $5.6 billion in revenue in the first half of the year," CEO Enrique Lores said.

BofA analyst Wamsi Mohan reiterated an Underperform rating and a $33.00 per share price target on HPQ shares.

“We reit Underperform given: 1) we see risk to F22 FCF target of at least $4.5bn as is predicted on improved 4Q PC rev, 2) increased competition in PC can be headwind to margins, 3) we expect ASPs for print/PC to trend lower as supply issues ease, 4) magnitude of beats vs. Street has been declining over the past several quarters suggesting a possible peaking of the cycle, and 5) we expect moderation of buybacks F23 onwards (vs. elevated F22 levels). In our opinion, HP’s Print and PC segments are primed to mean revert after cyclically overearning during COVID,” Mohan told clients.

Citi analyst Jim Suva hiked the price target on the Neutral-rated HPQ stock to $40.00 per share from $38.00.

“HP Inc had good results where sales beat by +2% and EPS by +3% followed by an EPS outlook that is +3% higher. Yes it is good results but we note one needs to watch the share shifts as competitor Dell posted much stronger results and outlook. Consensus will likely move up slightly but not materially. Our target price increases to $40 from $38 on slightly higher earnings as well as rolling forward one quarter. We maintain our Neutral rating as we prefer Dell given the valuation discount of Dell and the shift from consumer to enterprise demand benefits Dell more than HP Inc,” Suva said in a client note.

By Senad Karaahmetovic

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