HP Reports A Clean Q4 Beat, But Headwinds Keep Analysts On The Sidelines

HP Inc HPQ reported above-consensus top- and bottom-line results Thursday in the fiscal fourth quarter and issued fairly positive guidance for the first quarter and fiscal 2019 as a whole. 

The Analysts

Morgan Stanley analyst Katy Huberty maintained an Equal-weight rating and $28 price target for HP shares.

Wells Fargo Securities' Aaron Rakers maintained a Market Perform rating and $26 price target.

Morgan Stanley: Growing List of Headwinds

HP reported the fifth straight quarter of double-digit revenue growth and 20-percent-plus EPS growth, with gains across all regions and products on the basis of continued strong execution and share gains in its core PC and printer markets, Morgan Stanley's Huberty said in a Friday note.

Heading into 2019, the company faces several headwinds, including Intel Corporation INTC CPU shortages, the U.S.-China trade standoff and a stronger U.S. dollar, the analyst said. 

Huberty forecast a below-seasonal first half of 2019 due to the CPU shortages and a delay in pass-throughs of tariff costs. 

The maintenance of FCF guidance by HP even in the face of incremental pressures indicates confidence in the sustainability of the company's business model, Huberty said. 

Morgan Stanley reduced its 2019 year-over-year revenue growth estimate from 1.5 percent to 1.2 percent, but left its non-GAAP EPS guidance largely unchanged at $2.17.

Wells Fargo: Reiteration Of Guidance, CPU Shortages Elicit Muted Stock Reaction

HP's Q4 results reflect its positive execution on profitable share gains, favorable mix shifts in a stable PC demand environment and consistent pricing trends, Wells Fargo's Rakers said in a Thursday note.

The reiteration of fiscal 2019 EPS guidance at $2.12-$2.22 per share — with 2-cents-per-share accretion from the Apogee acquisition — and Intel CPU shortages potentially constraining growth in the first half will lead to muted stock reaction, the analyst said. 

"While we remain positive on HP's ability to drive profitable share gains and a favorable mix shift within PCs, we are cautious on the impact of component price decline pass-thru mitigating revenue growth through F2019."

The Price Action

HP shares have advanced about roughly 11 percent year-to-date.

The stock was up 3.63 percent at $23.82 at the time of publication Monday. 

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