How Does HP Look Post-Q4 Results?

HPQ: Hewlett logo

HP Inc.‘s (NYSE:HPQ) Q4 revenues came in at $15.4 billion (+10% y-o-y), higher than consensus estimates. However, EPS came in line with street expectations. The company’s management seems to have a plan set out in case of unforeseen events. At around 10% FCF yield, the stock looks attractively valued.

We maintain our price estimate of $27 per share for HP, which is around 20% higher than the current market price. Our interactive dashboard on HP’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.

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The Personal Systems group reported another strong set of revenues at $10.1 billion (+11% y-o-y), and Printing Systems grew to $5.3 billion (+9% y-o-y). While execution remained strong, management’s commentary around the broader macro environment and component pricing was notable:

  • Printing Business: On the A3 business, HP expects the benefits of hardware placement to start showing up in fiscal 2019 and additional benefits to flow through 2020 onwards, as the installed base continues to ramp up.
  • ASP, Component Pricing and Forex: ASPs continue to be a function of product mix for the company. However, management has adopted a wait-and-see stance on passing on the benefit of lower component pricing to the end user due to forex volatility. Furthermore, as a policy, HP does not lead the price cutting spree in a market, and thus is likely to sustain or grow pricing.
  • CPU Availability: While HP’s end demand remains strong, due to supply constraints from Intel, HP expects revenues in the first half of 2019 to be impacted. However, Intel is working towards restoring the demand-supply balance, and HP also has strong partnerships with AMD to help mitigate the situation.
  • Impact of Tariffs: HP expects the impact from tariffs related to the U.S.-China trade dispute to be “larger in the short-term and reduce throughout the year.” The primary impact of these tariffs is expected to be on the Personal and Desktop businesses. The management stated that it does not speculate on how the situation would evolve, and has additional levers to respond to developments.

Management also expects that some of the superior performance in fiscal 2018 was a result of pulling in some upside from fiscal 2019, due to inventory build-ups in anticipation of tariffs. Consequently, HP expects $3.7 billion in FCF for fiscal 2019 vs the $4.2 billion for 2018.

Do not agree with our forecast? Create your own price forecast for HP by changing the base inputs (blue dots) on our interactive dashboard.

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