How Much Value Can New PC Launches Add For HP Inc.?

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HPQ: Hewlett logo
HPQ
Hewlett

Despite a secular decline the PC hardware industry, HP Inc. (NASDAQ:HPQ) continues to outperform the market due to new launches in the premium segment that caters to both consumer and commercial clients. HP’s market share in the PC market has improved by 120 basis points y-o-y to 22.5% in the first nine months of 2017. Additionally, the company has reacquired the #1 spot in the global PC market in Q3, according to Gartner. While we are concerned that a further decline in PC sales will impact HP, new product launches – especially in the premium segment of the market – should help the company to buoy its PC shipments and revenues.

See our full analysis of HP

New Launches To Bolster Shipments, ASPs

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Over the last few quarters, the company launched a host of new laptops such as Spectre and Envy, equipped with new technologies such as Leap Motion. These laptops were fairly well-received, as evidenced by the increase in shipments for HP in the last three quarters.

During this timeframe, HP’s PC revenues – which includee sales of desktop and laptops – have grown by 12% y-o-y to $22.7 billion. As a result, the average sales price for the first nine months has grown by 7% y-o-y from $537 in 2016 to $575 in 2017 (nine months).

In 2017, HP has launched a host of new PCs such as the Spectre portfolio and Omen X gaming laptop. Some of its new launches boast enhanced bios-level security and privacy features, which have been well received. We believe that these new launches should help the company post an increase in shipments in the coming quarters despite a decline in the global PC market, in line with the trend established over the last nine months. Moreover, as the company is adding a value-added feature to HP’s existing product line, we believe that it will be able to sell its laptops for higher prices and thus improve its margin profile. We currently forecast the company’s EBITDA margin to increase from 4.7% in 2016 to 5.2% by the end of our forecast period. However, if shipments of premium devices improve, it could drive ASPs higher. As a result, there is scope for EBITDA margins to improve. If margins were to improve by 2.5% to 7.2%, there would be a 12% upside to our price estimate for the company’s stock.

We currently have $18 price estimate for HP, which is approximately 15% below the current market price.

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