HP Faces Margin Pressure But Analysts See AI PCs Driving Growth In 2025

HP Inc HPQ stock traded lower Wednesday after the company reported fiscal fourth-quarter financial results and issued fiscal first-quarter adjusted EPS guidance below estimates.

On Tuesday, HP reported revenue of $14.05 billion (versus $13.82 billion a year ago), which beat the analyst consensus estimate of $13.99 billion. The EPS of $0.93 was in line with the analyst consensus estimate.

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HP expects first-quarter adjusted EPS of $0.70 – $0.76, versus the $0.85 estimate, and fiscal 2025 adjusted EPS of $3.45 – $3.75, versus the $3.60 estimate.

Multiple Wall Street analysts rerated the stock after the quarterly print.

JP Morgan analyst Samik Chatterjee maintained an Overweight rating on HP with a price target of $40, down from $41.

Goldman Sachs analyst Michael Ng reiterated a Neutral rating on HP with a price target of $38, up from $35.

JP Morgan: Analyst Chatterjee highlights HP’s near-term challenges and opportunities in the personal systems (PS) and print segments. Despite known headwinds in the PC market, HP faces additional pressure from competitive pricing as it tries to offset higher memory costs. The company remains optimistic about a mid-single-digit recovery in PC units and increased adoption of AI PCs by enterprise customers in fiscal year 2025, supported by pent-up demand and Windows 11 refresh cycles.

The print segment performed well, generating $4.5 billion, surpassing expectations, while PS revenue came in at $9.6 billion, slightly below consensus. Operating margins were 8.5%, impacted by higher commodity costs and strategic investments.

For fiscal 2025, HP projects full-year revenue growth driven by mid-single-digit increases in PC units and seasonal recovery. However, first-quarter EPS guidance of $0.70 – $0.76 falls below consensus, reflecting margin pressures and the need for a significant recovery in PC volumes to meet annual targets.

HP’s print margins improved to 19.6% in the fourth quarter, exceeding internal and external forecasts. Due to cost discipline, the company anticipates print operating margins will remain at the higher end of the 16% – 19% range in fiscal 2025. Meanwhile, PS margins are expected to climb to the upper half of 5% – 7%, aided by improved pricing strategies and volume leverage.

Enterprise PC replacement cycles, supported by Windows 10’s end-of-life in 2025, and increased AI PC adoption are long-term growth drivers. HP’s supply chain resilience positions it to navigate potential tariff escalations better than peers, ensuring smoother operations.

Chatterjee maintains an Overweight rating on HP, emphasizing medium-term positioning in PS as a key growth driver. Stabilizing gross margins and operating efficiencies are expected to mitigate some margin pressures. The analyst slightly lowered the December 2025 price target, valuing fiscal 2026 EPS at 10x P/E, aligning with historical averages.

HP’s ability to recover in the PC market and capitalize on enterprise adoption of AI PCs remains critical to achieving long-term targets. While near-term pressures exist, structural improvements in the print and PS segments are expected to provide resilience.

Chatterjee projects first-quarter revenue of $13.47 billion and adjusted EPS of $0.75.

Goldman Sachs: HP delivered fiscal fourth-quarter 2024 EPS of $0.93, aligning with Goldman Sachs (GS) and consensus estimates. Print segment performance offset a modest miss in the Personal Systems (PS) division. Print revenue grew for the first time since fiscal fourth-quarter 2021, increasing 1% to $4.5 billion, surpassing GS and consensus projections of $4.3 billion and $4.2 billion, respectively. This growth stemmed from solid supplies and industrial graphics sales, although pricing pressures persisted.

Print margins reached 19.6%, exceeding guidance and analyst expectations ((GS: 18.5%,18, reflecting a favorable business mix and cost efficiencies. HP expects Print revenue to decline to low single digits (LSD%) in fiscal 2025, aligning with broader market trends, while supply revenue is projected to drop LSD to mid-single digits (MSD%).

In contrast, PS revenue fell to $9.6 billion, missing GS and consensus estimates of $9.8 billion. While consumer PS revenue declined 4%, commercial PS revenue grew 5%, with unit volumes increasing 4%. HP anticipates mid-single-digit (MSD%) growth in the PS segment for fiscal 2025, driven by factors such as Windows 10 end-of-life, a refreshed PC installed base, and the rise of AI PCs, which are expected to comprise 20% of shipments.

HP anticipates more robust performance in the second half of fiscal 2025 as PC demand accelerates, supported by the commercial segment, premium consumer systems, and AI PCs. Commodity cost pressures impacting PS margins are expected to subside in the latter half of the fiscal year, aided by cost reductions and pricing strategies.

Ng remains neutral on HP, raising the 12-month price target based on a 10x P/E multiple. The revised valuation reflects HP’s market share gains in commercial and premium PC segments. Ng projects first-quarter adjusted EPS of $0.75.

Price Action: HPQ stock is down 12.5% at $34.22 at last check Wednesday.

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