On Wednesday, Citi maintained a Neutral rating on HP, Inc. (NYSE:HPQ) stock but reduced its price target from $37.00 to $36.50. The adjustment follows HP's stock decline of approximately 7% after the company's earnings guidance fell short of market expectations. The lowered forecast is attributed to a slower than anticipated recovery in the PC market and elevated commodity costs that are currently affecting PC margins.
According to the analyst, while the PC recovery is expected to accelerate in upcoming quarters with potential margin improvements as HP implements cost and pricing actions, the near-term outlook remains cautious. The Print segment, on the other hand, outperformed expectations in the quarter. H
owever, HP's management anticipates the overall market for printing to experience a low single-digit decline into fiscal year 2025. Despite the market contraction, margins in the Print segment are expected to stay at the higher end of HP's target range, supported by a shift to more profitable units and ongoing cost management efforts.
The analyst noted that HP's projected earnings per share (EPS) for the year are just a penny below consensus estimates, coming in at $3.60 at the midpoint. This figure is slightly under the analyst's prior expectations. As a result, their estimates have been marginally adjusted downward, leading to the revised price target of $36.50, which is based on a 10 times next twelve months (NTM) price-to-earnings (PE) ratio.
In summary, Citi's adjustment of HP's price target reflects a cautious stance on the company's near-term earnings potential, largely influenced by the slower PC market recovery and the expected decline in the printing market, despite some positive aspects in cost management and product mix.
In other recent news, HP Inc (NYSE:HPQ). has reported an increase in Q4 2024 revenue with a 2% year-over-year rise, alongside a 3% growth in non-GAAP EPS to $0.93. This growth was observed in both Personal Systems and Print segments, with a notable emphasis on commercial markets and the introduction of AI PC innovations. The company also generated $3.3 billion in free cash flow, nearly all of which was returned to shareholders, and increased its annual dividend by 5% to $1.16 per share.
Furthermore, AI PCs accounted for 15% of Q4 shipments, a figure expected to rise to 25% in fiscal 2025. HP Inc. anticipates growth in the commercial PC market to outpace that of the consumer segment. Despite a projected low single-digit decline in the print market for fiscal 2025, the company's focus on AI capabilities, commercial segments, and growth businesses is expected to drive future performance.
The company's outlook for fiscal 2025 predicts revenue and non-GAAP EPS growth, with a stronger performance anticipated in the latter half of the year. These recent developments highlight HP Inc.'s strategic focus on AI integration and its commitment to leading in the future of work, as emphasized by CEO Enrique Loris.
InvestingPro Insights
To complement Citi's analysis, InvestingPro data provides additional context on HP's financial position and market performance. Despite the challenges in the PC market, HP's stock has shown strong performance, with a 41.83% total return over the past year. The company's P/E ratio of 13.63 suggests a relatively attractive valuation, especially considering its PEG ratio of 0.5, which indicates the stock may be undervalued relative to its earnings growth potential.
InvestingPro Tips highlight that HP has been aggressively buying back shares and offers a high shareholder yield, which aligns with the company's focus on returning value to shareholders despite market headwinds. Additionally, HP has maintained dividend payments for 54 consecutive years and has raised its dividend for 7 consecutive years, demonstrating a commitment to shareholder returns even in challenging times.
These insights provide a broader perspective on HP's financial health and shareholder-friendly policies, which may be important considerations alongside the near-term challenges outlined in the article. Investors seeking a more comprehensive analysis can access 13 additional InvestingPro Tips for HP, offering a deeper understanding of the company's position in the technology hardware sector.
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