Introducing HP Inc. (NYSE: HPQ), a tech giant born from Hewlett-Packard’s 2015 split

HP Inc. (NYSE: HPQ) is a multinational information technology company that was formed in 2015 as a result of the split of the original Hewlett-Packard Company. The split led to the creation of two separate entities: HP Inc. and Hewlett Packard Enterprise (HPE). HP Inc. focuses on personal computing and printing products, while HPE is dedicated to enterprise solutions and services. 

HP Inc. is known for manufacturing a wide range of hardware, including personal computers, laptops, printers, and other imaging and printing-related products. They also provide software and services in areas such as cybersecurity and IT management. 

As of my last knowledge update in January 2022, HP Inc. continued to be a prominent player in the consumer and business technology markets. For the latest and most accurate information, especially regarding financial details or recent developments, it’s recommended to check the company’s official website or other reliable financial news sources. 

Highlights and News Updates 

• On December 29^th, 2023, PC makers rose this year on demand recovery and AI boom. 

• On December 21^st, 2023, Wallstreet analysts are bullish on HP, Inc. 

• On December 15^th, 2023, Hewlett Packard Enterprise said Marie Myers has been named its new chief financial officer. She joins HP Enterprise from HP Inc. The old, original Hewlett-Packard split into two companies in 2015. HP Inc. makes PCs and printers, while HP Enterprise sells servers, networking hardware, and supercomputers, among other products. 

• On December 12^th, 2023, Warren Buffett’s Berkshire cuts its stake in HP, and Carl Icahn gives up FirstEnergy’s board seat. 

• On December 11^th, 2023, The PC market is poised for a rebound, and that should be great news for shares of HP Inc., analysts say. 

Key Data 

Fourth Quarter 2023 Highlights 

• Revenue fell to US $13.82 billion from US $14.77 billion a year earlier, trailing the Street’s view for US $13.86 billion. 

• Personal systems revenue slid 8% to nearly US $9.4 billion. Printing generated US $4.42 billion in revenue, compared with US $4.53 billion in the 2022 quarter. 

• The consumer group slumped 21% while commercial moved 4% lower. Total hardware units sunk 19% on a yearly basis. 

• Per-share adjusted earnings rose 10% to US $0.90 per share for the three months through October. 

• The ongoing quarter, HP anticipates adjusted EPS to be in a range of US $0.76 to US $0.86, while the Street is looking for US $0.83. 

Financials 

Over the past five years, HPQ has witnessed revenue fluctuations ranging from US $53.33 billion to US $63.25 billion. Despite a temporary upswing in FY2021, the company faced a 13.8% decline in revenue during FY2023 compared to FY2019, indicating challenges within the PC market and suggesting possible market saturation. However, amidst this revenue volatility, HPQ has demonstrated commendable financial resilience.  

The company’s earnings per share (EPS) exhibited a positive trend, rising from US $2.95 in FY2019 to US $3.26 in FY2023, reflecting effective cost management strategies. Despite the fluctuating revenue, HPQ maintained a stable gross margin, hovering around 20.7% in FY2023, signaling control over the cost of goods sold. Moreover, the net margin showed steady improvement, climbing from 4.2% in FY2019 to 6.1% in FY2023, underscoring efficient expense management and heightened profitability.  

In response to challenges in the PC hardware market, HPQ has strategically shifted its focus towards higher-margin services such as cloud computing and managed print services. Embracing a subscription-based services model, the company aims to establish predictable revenue streams, showcasing a proactive approach to evolving market dynamics. 

The debt of the company was on an increasing trend but in FY2023 the debt dipped by 13.86%. The company has an asset worth US $37 billion including cash in hand of US $3.232 billion. The debt is a concern here. 

Throughout the year, HPQ has experienced a persistent decline in revenue, signaling potential challenges in the PC market and economic headwinds. Despite this downward trend in revenue, HPQ has demonstrated resilience by enhancing its profitability metrics.  

Notably, both the earnings per share (EPS) and net margins have shown positive trajectories, suggesting effective cost management and operational efficiency within the company. In response to the changing market landscape, HPQ is strategically redirecting its focus toward higher-margin services such as cloud computing and managed print services.  

This strategic shift is contributing to improved profit margins, showcasing the company’s adaptability and proactive approach to evolving market dynamics. The industry is expected to see positive growth in FY2024 due to lower inflation and a good amount of consumer spending. 

Currently, the EPS of the company is US $3.26 up by 9.39% compared to last year’s EPS. 

Forecast 

Right now, the company is trading at US $29.90 with a 1-year projected target of around US $33.78 and a low estimation of US $26.94; the average price target is US $31.64. 

Technical Analysis 

• The stock has corrected more than 25% and it has taken support on its support level.  

• Right now, the RSI (54.25) indicator is above 50, and it also gives us a bullish divergence.  

• The stock has the potential to bounce back up to 13% from the current market price. Analysts are bullish on this stock. 

• The stock is making a cup and handle pattern. 

Indicators Summary – Buy 

• The price action analysis of the stock indicates a positive uptrend in the stock. Market sentiments are bullish. 

• Momentum Indicator is giving a buy signal. 

• Moving averages are giving us a buy signal. 

Risk factors 

There are a few risks involved in investing in the company. 

• HPQ faces fierce competition from other tech giants like Dell, Apple, and Lenovo in the PC and printing markets. Maintaining its market share and profitability will be a continuous challenge.  

• The rapid evolution of the technology landscape, with innovations in cloud computing and software-defined services, could disrupt HPQ’s legacy business models and require significant strategic adaptations.  

• HPQ relies heavily on third-party suppliers for components and manufacturing. Disruptions in the supply chain due to geopolitical tensions or other factors could impact production and sales. 

• The company also has a very high amount of debt. It is prone to changes in interest rates. 

Stock Recommendation 

HP is a well-established brand with a global presence, giving it an advantage in attracting customers and partners. Despite declining revenue, HPQ has demonstrated a consistent rise in EPS and net margin over the past four quarters. This indicates efficient cost management and potential for future growth. HPQ’s shift towards higher-margin services like cloud computing and managed print services creates predictable revenue streams and potential for long-term stability. HPQ is moving beyond its core PC and printing business, expanding into growing markets like cloud computing and 3D printing, offering the potential for future revenue diversification. 

MarketFacts gives a “Buy” rating on the stock at the closing price of US $29.90 as of January 3^rd, 2024. 

CMP (US) (January 3, 2024)	$29.90
Target Price	$33.78
Recommendation	Buy

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