HP, Inc. (NYSE: HPQ)
The Hewlett-Packard Company, commonly shortened to Hewlett-Packard or HP, was an American multinational information technology company headquartered in Palo Alto, California. The company was founded in a one-car garage in Palo Alto by Bill Hewlett and David Packard in 1939, and initially produced a line of electronic test and measurement equipment. HP is known for its computer products, including its popular printers, laptops, and accessories. Having recently beaten analysts’ expectations with its Q3 report, the company has seen an increase in mentions by 175% over the last day, prompting investors to wonder what makes the company so popular. Currently, shares of HP trade at $30.17 each.
Positive Hype
There are lots of reasons that HP has come to gain this much positive hype, here are some of them.
For the fourth quarter of fiscal 2022, which ended on Oct. 31, the PC and printer maker's revenue declined 11% year over year to $14.8 billion but still beat analysts' estimates by $120 million.
Its adjusted earnings dropped 10% to $0.85 per share but also cleared the consensus forecast by a penny.
Although the printing division's revenue declined by 7% year over year last quarter, its operating profit actually increased 8.8% to $903 million thanks to the company's cost-controlling efforts.
HP also unveiled a new "Future Ready Transformation Plan" which aims to streamline its business by fiscal 2025. CEO Enrique Lores said the company's Future Ready Transformation plan would generate significant savings through its "digital transformation, portfolio optimization, and operational efficiency" strategies.
Lores believes HP can generate $1.4 billion in annualized gross run rate cost savings by fiscal 2025 by "driving efficiencies, simplifying the organizational structure, and removing unnecessary costs, which seems like an achievable target.
HP hiked its quarterly dividend by 5% to $0.2625 per share, or $1.05 annualized, with an annual yield of 3.6%
The company also recently executed $4.3 billion worth of share repurchases during the fiscal year that ended on Oct. 31, retiring about 12% of its shares outstanding.
Negative Hype
Like any other company, HP is not perfect. Here are a couple of reasons why it might not be the best time to buy any HP shares.
HP didn't provide any top-line guidance, but it expects its adjusted EPS to shrink 27%-36% year over year in the first quarter of fiscal 2023 and to slide 12%-22% for the full year. Both those estimates missed Wall Street's expectations and indicated the post-pandemic deceleration of the PC market would drag on for at least a few more quarters.
HP's revenue has already declined year over year for two consecutive quarters, and its growth won't accelerate again anytime soon. During the call, Lores predicted that global PC sales would decline 10% next year and return to their pre-pandemic levels.
Conclusion
HP has been doing well financially with the consideration that demand has come to normal after the pandemic, and with a valuation like this, stock repurchases and a 3.5% dividend yield, it is the perfect time to take a position in the company. HP is worth exploring for value investors who favor stocks with low price-to-earnings ratios and high dividend yields. Even with the current economic downturn and its implications in the near future, HP seems like it’ll power through and still stick to the plan that it has now. Despite the price target cut and shipping drop, HP’s too good to miss at such a price.
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