HP's Q2 Print, 3-D Printing Business Trigger Maxim Upgrade

HP Inc HPQ reported fiscal second-quarter earnings Tuesday that show its core printing supplies business is poised for growth — and the company's 3-D printing segment has a large runway ahead, according to Maxim Group.

The Analyst

Maxim Group's Nehal Chokshi upgraded HP's stock rating from Hold to Buy with a price target lifted from $27 to $28.

The Thesis

HP's earnings report showed a 13-percent year-over-year revenue growth rate to $14 billion, 3-percent better than expected, Chokshi said in a Wednesday note.

An EPS figure of 48 cents was up 21 percent from one year ago and came in-line with expectations, the analyst said.

HP's Personal Systems Group posted a better-than-expected profit by 12 percent, but the Imaging & Printing Group profit fell short of expectations by around 1 percent, despite a 2-percent revenue beat.

Maxim's conversations and checks with HP's 3-D Printing President Stephen Nigro suggest the business will be operating at five times its current operating profit run rate over time via a "well thought-out" cost per part reduction of at least 3x over a 10-year period, Chokshi said.

HP should be able to generate an incremental $18 billion in operating profit per year versus its current $3.9-billion profit over the next decade via 3-D printing as it targets the $12-trillion manufacturing industry, the analyst said.

Maxim's revised $28 price target is based on a 14x multiple on the 2018 EPS estimate of $1.99, which is up from a prior estimate of $1.95.