HP, Inc. (NYSE: HP)
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. With the recent sell-off and Buffet’s interest in the stock, the company has seen an increase in mentions by 76% over the last day, prompting investors to wonder what makes the company so popular. Currently, shares of HP trade at $26.61 each.
There are lots of reasons that HP has come to gain this much positive hype, here are some of them.
First, PC and printing solution sales and operating cash flows tend to be highly predictable, even during periods of economic weakness, and for investors that would prefer predictability, HP would be a good choice.
Earnings of $1.04 per share were in line with expectations and up slightly versus year-ago figures.
HP expects to reap free cash flow between $3.2 billion and $3.7 billion for its fiscal year.
The company increased its base annual payout by 29% in 2021 and has been aggressively repurchasing its common stock. Year to date, the company has used $3.5 billion to repurchase shares.
HP also offers a dividend yield of 3.5% to its shareholders, which is attractive in itself.
Next quarter, HP anticipates its diluted per-share profit to be between $0.44 and $0.54, which is still easily more than its quarterly dividend. At that kind of run rate, that would put the stock's payout ratio between 46% and 57%.
At less than 7 times the forecast earnings for the upcoming year, HP's shares probably have a safe floor built in.
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.
On the back of an analyst's price target cut, HP's share price withered by almost 2%. To put this into perspective, that’s marginally worse than the slightly more than 1% slide experienced by the S&P 500 index. The analyst said in his latest research note that their printer supplies revenue has declined at a CAGR of 3% across the last 10 years. More worryingly, this metric fell by 9% in the third quarter alone.
Global PC shipments were down 11% in the second quarter, and HP took the brunt of it, shipping 27% fewer PCs during the quarter. PC shipments are expected to continue to fall by 13% in the 2022 calendar year to about 305 million units, then fall further in 2023.
HP has been doing well financially, and with a valuation like this, stock repurchases and a 3.5% dividend yield, it looks like the perfect time to take a position in the company. Although there is the potential for an economic downturn 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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