HP (HPQ) cutting up to 6,000 jobs is an 'unexpected major positive surprise' says Citi

November 23, 2022 7:57 AM EST
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HP Inc. (NYSE: HPQ) stock is up just over 1% in pre-market Wednesday after the PC maker said it will cut about 10% of its workforce as it looks to offset softer demand and challenging macro.

HP reported an in-line EPS of $0.85 while revenue fell 11% to $14.8 billion, a slight miss compared to the consensus of $14.84B. The decline in revenue was led by weakness in the PC unit, which saw revenues fall by 13%.

The company expects Q1 EPS at $0.75 (up or minus $0.05), trailing the consensus of $0.86, while full-year EPS is seen at $3.40 (the midpoint), again below the $3.61 average analyst estimate.

HP also announced the “Future Ready Transformation” plan, which will see the total number of employees reduced by 4,000 to 6,000 by the end of fiscal 2025. As a result, the company expects annualized gross run rate savings of at least $1.4B by the end of fiscal 2025.

“Looking forward, the new Future Ready strategy we introduced this quarter will enable us to better serve our customers and drive long-term value creation by reducing our costs and reinvesting in key growth initiatives to position our business for the future,” said Enrique Lores, HP President and CEO.

Furthermore, HP raised its quarterly dividend by 5% to $0.2625 per share (or $1.05 annualized), which is payable on January 4, 2023, to stockholders of record on December 14, 2022.

Citi analyst Jim Suva said the announced job cuts are an “unexpected major positive surprise by HP.”

“To put this in context, that is $0.50 of EPS help in F23 and over $1 of EPS exiting F25 and we believe is a big positive that investors did not expect. Our F23 EPS moves lower but F24 higher due to the cost savings and the net result is we are not changing our target price of $31 and Neutral rating,” Suva wrote in a note.

Bank of America analyst Wamsi Mohan remains Underperform-rated on HPQ stock.

“We see restructuring as an avenue for HPQ to better align with its long-term OM targets given macro headwinds. We expect HPQ’s print and PC businesses to mean revert after over-earning during COVID,” Mohan said to clients.

By Senad Karaahmetovic

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